Creating Intangible Capital

62 Pages Posted: 12 Nov 2019 Last revised: 1 Apr 2020

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University

Tomislav Ladika

University of Amsterdam

Enrico C. Perotti

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

Date Written: March 30, 2020

Abstract

We propose a new framework modelling intangible capital creation as the joint investment of firm resources and skilled human capital. High-intangible firms require less ex-ante cash spending yet must offer more deferred compensation to retain employees, creating unhedgeable risk. A human capital retention motive for financial prudence thus arises, even absent traditional precautionary needs. Insuring unvested claims requires more net cash in good states and equity rather than debt financing. Because intangibles can be easily diverted, firms need more inside equity and unvested employee claims can exacerbate turnover. The model offers an explanation for recent puzzling trends in corporate financing.

Keywords: Technological change, intangible assets, human capital, corporate leverage, cash holdings, equity grants, deferred equity, share vesting.

JEL Classification: G32, G35, J24, J33

Suggested Citation

Döttling, Robin and Ladika, Tomislav and Perotti, Enrico C., Creating Intangible Capital (March 30, 2020). Available at SSRN: https://ssrn.com/abstract=3479152 or http://dx.doi.org/10.2139/ssrn.3479152

Robin Döttling (Contact Author)

Rotterdam School of Management, Erasmus University ( email )

P.O. Box 1738
Room T08-46
3000 DR Rotterdam, 3000 DR
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

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)

London
United Kingdom

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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