Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut
78 Pages Posted: 26 Jun 2018 Last revised: 24 Mar 2020
Date Written: March 18, 2020
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, to highlight the following points: 1) since only tangible capital can be pledged as collateral, 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
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