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The (Self-)Funding of Intangibles

55 Pages Posted: 3 Nov 2016 Last revised: 23 Jul 2017

Robin Döttling

University of Amsterdam - Finance Group; Tinbergen Institute

Tomislav Ladika

University of Amsterdam

Enrico C. Perotti

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

Multiple version iconThere are 2 versions of this paper

Date Written: July 17, 2017

Abstract

We model how technological change leads to a shift in corporate investment towards intangible capital, and test its implications for corporate financial policy. While tangible assets can be purchased and funded externally, most intangible capital is created by skilled workers investing their human capital, so it requires lower upfront outlays. Indeed, U.S. high-intangibles firms have larger free cashflows and lower total investment spending, and do not appear more financially constrained. We model and test how these firms optimally retain cash for both a precautionary as well as a retention motive. The optimal reward for risk-averse human capital involves deferred compensation and a commitment to retain cash. High-intangibles firms also should favor a payout policy of repurchases over dividends to avoid penalizing unvested claims. Our empirical evidence supports these predictions.

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 (July 17, 2017). Available at SSRN: https://ssrn.com/abstract=2863267 or http://dx.doi.org/10.2139/ssrn.2863267

Robin Döttling

University of Amsterdam - Finance Group ( email )

Roetersstraat 18
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tomislav Ladika

University of Amsterdam ( email )

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

HOME PAGE: http://www1.fee.uva.nl/pp/tladika/

Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

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

HOME PAGE: http://www.fee.uva.nl/fm/people/pero.htm

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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