The (Self-)Funding of Intangibles

36 Pages Posted: 3 Nov 2016 Last revised: 24 May 2018

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Tomislav Ladika

University of Amsterdam

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: May 21, 2018


We model how the evolution of investment towards intangible capital offers new implications for corporate funding, employee compensation and payout policy. Tangible capital can be purchased by firms and funded externally, while intangible capital is largely created by skilled workers investing their human capital and cannot be pledged. As a result, intangible capital requires lower upfront investment by firms, resulting in larger free cashflow, and more financial slack to avoid future funding constraints. On the other hand, firms need to promise more future cashflows to employees in the form of unvested equity grants, whose value is supported by retaining cash and favoring repurchases over dividends. The model thus predicts a human capital retention motive for financial prudence next to the traditional precautionary motive. Aggregate data appear consistent with these predictions, also for firms that do not appear financially constrained.

Keywords: Technological change, intangible assets, cash holdings, human capital, corporate leverage, equity grants, deferred equity, share vesting.

JEL Classification: G32, G35, J24, J33

Suggested Citation

Döttling, Robin and Ladika, Tomislav and Perotti, Enrico C., The (Self-)Funding of Intangibles (May 21, 2018). Available at SSRN: or

Robin Döttling

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam

Tomislav Ladika

University of Amsterdam ( email )

Roetersstraat 18
Amsterdam, 1018WB
020-5255501 (Phone)


Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

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