Creating Intangible Capital

65 Pages Posted: 12 Nov 2019 Last revised: 12 Dec 2023

See all articles by Robin Döttling

Robin Döttling

Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)

Tomislav Ladika

University of Amsterdam

Enrico C. Perotti

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

Date Written: December 12, 2023

Abstract

We model intangible assets as created through the joint investment of firm resources and skilled human capital. High-intangible firms demand less upfront debt financing and instead grant more deferred compensation to reward and retain critical human capital. Deferred claims expose employees to risk, but firms can provide insurance by committing to maintain financial slack. This retention motive is especially crucial in good states when competition for human capital is intense, unlike traditional precautionary savings that insure against bad states. Large deferred compensation claims also encourage a unique form of insider moral hazard, which can be overcome by a lower insider stake in the firm. Innovative projects are more likely to succeed when the firm establishes a reputation over time for rewarding human capital, which is itself an intangible asset.

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 (December 12, 2023). 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

Erasmus Research Institute of Management (ERIM) ( email )

P.O. Box 1738
3000 DR Rotterdam
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

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