Creating Intangible Capital

57 Pages Posted: 12 Nov 2019 Last revised: 15 Dec 2019

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: December 14, 2019

Abstract

We propose a framework in which intangible capital is created by the joint investment of firm resources and skilled human capital, reducing ex-ante investment spending. Firms must offer deferred compensation to retain employees, creating unhedgeable risk. A human capital retention motive for financial prudence thus arises also absent traditional precautionary motives. Insuring unvested claims requires more net cash in good states, equity rather than debt financing and payouts via repurchases rather than dividends. As intangibles can be easily diverted, firms need more inside equity, especially under high compensation overhang. The model sheds new light on several recent trends in corporate financing.

Keywords: technological change, intangible assets, cash holdings, human capital, corporate leverage, 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 14, 2019). 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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