Intangible Asset Reallocation and Financial Frictions

70 Pages Posted: 10 Dec 2018

See all articles by Yifei Wang

Yifei Wang

University of Michigan, Department of Finance

Date Written: September 1, 2018

Abstract

I develop and estimate a novel dynamic model of the secondary market trading of intangible assets in an environment where financial market frictions interfere with firm investment. Intangible asset trading (IAT) not only serves as an alternative means of financing but also reallocates investment opportunities to firms in better positions to exploit them. Estimation of the model uncovers high trading frictions, but the option to trade still leads to significant efficiency gains. These gains stem both from IAT's direct effect on relaxing firms' financial constraints and especially from ex ante changes in firms' expectations, which influence their investment choices. I also show that the impact of financial frictions depends largely on the ease with which firms can trade intangibles. Finally, I present corroborating reduced-form evidence that firms sell a particular type of intangible asset, patents, during times of financial distress and their financial conditions appear to improve after these sales.

Keywords: Intangible Asset Trading, Financial Frictions, Trading Frictions, R&D

JEL Classification: E22, G32, O31

Suggested Citation

Wang, Yifei, Intangible Asset Reallocation and Financial Frictions (September 1, 2018). Available at SSRN: https://ssrn.com/abstract=3284125 or http://dx.doi.org/10.2139/ssrn.3284125

Yifei Wang (Contact Author)

University of Michigan, Department of Finance ( email )

Ann Arbor, MI
United States

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