Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut
83 Pages Posted: 26 Jun 2018 Last revised: 24 Feb 2021
There are 2 versions of this paper
Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut
Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut
Date Written: December 11, 2020
Abstract
This paper explores the connection between rising intangible capital and the secular upward trend in US corporate cash holdings. We calibrate a dynamic model with two productive assets, tangible and intangible capital, in which only tangible capital can serve as collateral. We highlight the following points: 1) a shift toward intangible capital shrinks firms' debt capacity and leads them to hold more cash; 2) the effect accounts for 3/4 of the observed trend in average cash ratios; 3) it also accounts for the upward trend of cash ratios in the cross-section of small and large firms and in the aggregate.
Keywords: Intangible Assets, Debt Capacity, Risk Management, Corporate Cash Holdings
JEL Classification: E22, E44, G31, G32
Suggested Citation: Suggested Citation