Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut

78 Pages Posted: 26 Jun 2018 Last revised: 24 Mar 2020

See all articles by Antonio Falato

Antonio Falato

Board of Governors of the Federal Reserve System

Dalida Kadyrzhanova

Georgia State University

Jae Sim

Board of Governors of the Federal Reserve System

Roberto Steri

University of Luxembourg

Multiple version iconThere are 2 versions of this paper

Date Written: March 18, 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, 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

Suggested Citation

Falato, Antonio and Kadyrzhanova, Dalida and Sim, Jae W. and Steri, Roberto, Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut (March 18, 2020). Available at SSRN: https://ssrn.com/abstract=3198030 or http://dx.doi.org/10.2139/ssrn.3198030

Antonio Falato (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th & C. St., N.W.
Washington, DC 20551
United States

Dalida Kadyrzhanova

Georgia State University ( email )

J Mack Robinson College of Business
35 Broad St, 12th Floor
Atlanta, GA 30303-3083
United States

Jae W. Sim

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Roberto Steri

University of Luxembourg ( email )

Kirchberg, 6, rue Richard Coudenhove-Kalergi
Luxembourg
Luxembourg

HOME PAGE: http://https://sites.google.com/site/robertosteripersonalpage/

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