Nothing Special   »   [go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/a/eee/jfinec/v133y2019i3p564-588.html
   My bibliography  Save this article

Financing intangible capital

Author

Listed:
  • Sun, Qi
  • Xiaolan, Mindy Z.
Abstract
Firms finance intangible investment through employee compensation contracts. In a dynamic model in which intangible capital is embodied in a firm’s employees, we analyze the firm’s optimal decisions on intangible capital investment, employee compensation contracts, and financial leverage. Employee financing is achieved by delaying wage payments in the form of future claims. We show that intangible capital investment is highly correlated with employee financing but not with debt issuance or regular equity refinancing. In our quantitative analysis, we show that this new channel of employee financing explains the cross-industry differences in leverage and financing patterns.

Suggested Citation

  • Sun, Qi & Xiaolan, Mindy Z., 2019. "Financing intangible capital," Journal of Financial Economics, Elsevier, vol. 133(3), pages 564-588.
    • Handle: RePEc:eee:jfinec:v:133:y:2019:i:3:p:564-588
    DOI: 10.1016/j.jfineco.2019.04.003
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X19300881
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jfineco.2019.04.003?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jonathan Thomas & Tim Worrall, 1988. "Self-Enforcing Wage Contracts," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 541-554.
    2. Rui Albuquerque & Hugo A. Hopenhayn, 2004. "Optimal Lending Contracts and Firm Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(2), pages 285-315.
    3. Lee, Bong-Soo & Ingram, Beth Fisher, 1991. "Simulation estimation of time-series models," Journal of Econometrics, Elsevier, vol. 47(2-3), pages 197-205, February.
    4. repec:bla:jfinan:v:43:y:1988:i:1:p:1-19 is not listed on IDEAS
    5. Timothy Erickson & Toni M. Whited, 2000. "Measurement Error and the Relationship between Investment and q," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1027-1057, October.
    6. Urban Jermann & Vincenzo Quadrini, 2012. "Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(1), pages 238-271, February.
    7. Oyer, Paul & Schaefer, Scott, 2005. "Why do some firms give stock options to all employees?: An empirical examination of alternative theories," Journal of Financial Economics, Elsevier, vol. 76(1), pages 99-133, April.
    8. Bronwyn Hall, 2004. "The financing of research and development," Chapters, in: Anthony Bartzokas & Sunil Mani (ed.), Financial Systems, Corporate Investment in Innovation, and Venture Capital, chapter 2, Edward Elgar Publishing.
    9. Shaojin Li & Toni M. Whited & Yufeng Wu, 2016. "Collateral, Taxes, and Leverage," The Review of Financial Studies, Society for Financial Studies, vol. 29(6), pages 1453-1500.
    10. Lustig, Hanno & Syverson, Chad & Van Nieuwerburgh, Stijn, 2011. "Technological change and the growing inequality in managerial compensation," Journal of Financial Economics, Elsevier, vol. 99(3), pages 601-627, March.
    11. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46, National Bureau of Economic Research, Inc.
    12. Mark J. Garmaise, 2008. "Production in Entrepreneurial Firms: The Effects of Financial Constraints on Labor and Capital," The Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 543-577, April.
    13. Burkhard Heer & Alfred Maußner, 2024. "Dynamic General Equilibrium Modeling," Springer Texts in Business and Economics, Springer, edition 3, number 978-3-031-51681-8.
    14. Robin Döttling & Tomislav Ladika & Enrico Perotti, 2016. "The (Self-)Funding of Intangibles," Tinbergen Institute Discussion Papers 16-093/IV, Tinbergen Institute.
    15. Antonio Falato & Dalida Kadyrzhanova & Jae W. Sim, 2013. "Rising intangible capital, shrinking debt capacity, and the US corporate savings glut," Finance and Economics Discussion Series 2013-67, Board of Governors of the Federal Reserve System (U.S.).
    16. Christopher A. Hennessy & Toni M. Whited, 2007. "How Costly Is External Financing? Evidence from a Structural Estimation," Journal of Finance, American Finance Association, vol. 62(4), pages 1705-1745, August.
    17. Timothy Erickson & Toni M. Whited, 2012. "Treating Measurement Error in Tobin's q," The Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1286-1329.
    18. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2013. "Credit within the Firm," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 211-247.
    19. Oyer, Paul & Schaefer, Scott, 2006. "Costs of broad-based stock option plans," Journal of Financial Intermediation, Elsevier, vol. 15(4), pages 511-534, October.
    20. Rampini, Adriano A. & Viswanathan, S., 2013. "Collateral and capital structure," Journal of Financial Economics, Elsevier, vol. 109(2), pages 466-492.
    21. Hall, Bronwyn H. & Lerner, Josh, 2010. "The Financing of R&D and Innovation," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 1, chapter 0, pages 609-639, Elsevier.
    22. Missaka Warusawitharana & Toni M. Whited, 2016. "Equity Market Misvaluation, Financing, and Investment," The Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 603-654.
    23. Claudio Michelacci & Vincenzo Quadrini, 2009. "Financial Markets and Wages," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 795-827.
    24. Wendy C. Y. Li & Bronwyn H. Hall, 2020. "Depreciation of Business R&D Capital," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(1), pages 161-180, March.
    25. DeAngelo, Harry & DeAngelo, Linda & Whited, Toni M., 2011. "Capital structure dynamics and transitory debt," Journal of Financial Economics, Elsevier, vol. 99(2), pages 235-261, February.
    26. Ilona Babenko & Yuri Tserlukevich, 2009. "Analyzing the Tax Benefits from Employee Stock Options," Journal of Finance, American Finance Association, vol. 64(4), pages 1797-1825, August.
    27. Baruch Lev & Suresh Radhakrishnan, 2005. "The Valuation of Organization Capital," NBER Chapters, in: Measuring Capital in the New Economy, pages 73-110, National Bureau of Economic Research, Inc.
    28. Boris Nikolov & Toni M. Whited, 2014. "Agency Conflicts and Cash: Estimates from a Dynamic Model," Journal of Finance, American Finance Association, vol. 69(5), pages 1883-1921, October.
    29. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    30. Vincenzo Quadrini & Ramon Marimon & Thomas Cooley, 2012. "Risky Investments with Limited Commitment," 2012 Meeting Papers 603, Society for Economic Dynamics.
    31. Fama, Eugene F. & French, Kenneth R., 2005. "Financing decisions: who issues stock?," Journal of Financial Economics, Elsevier, vol. 76(3), pages 549-582, June.
    32. Erickson, Timothy & Whited, Toni M., 2002. "Two-Step Gmm Estimation Of The Errors-In-Variables Model Using High-Order Moments," Econometric Theory, Cambridge University Press, vol. 18(3), pages 776-799, June.
    33. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
    34. Han, Chirok & Phillips, Peter C. B., 2010. "Gmm Estimation For Dynamic Panels With Fixed Effects And Strong Instruments At Unity," Econometric Theory, Cambridge University Press, vol. 26(1), pages 119-151, February.
    35. Jonathan B. Berk & Richard Stanton & Josef Zechner, 2010. "Human Capital, Bankruptcy, and Capital Structure," Journal of Finance, American Finance Association, vol. 65(3), pages 891-926, June.
    36. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    37. repec:bla:jfinan:v:59:y:2004:i:4:p:1585-1618 is not listed on IDEAS
    38. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
    39. Urban Jermann & Vincenzo Quadrini, 2012. "Erratum: Macroeconomic Effects of Financial Shocks," American Economic Review, American Economic Association, vol. 102(2), pages 1186-1186, April.
    40. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
    41. Narayana R. Kocherlakota, 1996. "Implications of Efficient Risk Sharing without Commitment," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 595-609.
    42. Milton Harris & Bengt Holmstrom, 1982. "A Theory of Wage Dynamics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(3), pages 315-333.
    43. Andrea L. Eisfeldt & Dimitris Papanikolaou, 2014. "The Value and Ownership of Intangible Capital," American Economic Review, American Economic Association, vol. 104(5), pages 189-194, May.
    44. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    45. Jagannathan, Ravi & Matsa, David A. & Meier, Iwan & Tarhan, Vefa, 2016. "Why do firms use high discount rates?," Journal of Financial Economics, Elsevier, vol. 120(3), pages 445-463.
    46. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1.
    47. Adriano A. Rampini & S. Viswanathan, 2010. "Collateral, Risk Management, and the Distribution of Debt Capacity," Journal of Finance, American Finance Association, vol. 65(6), pages 2293-2322, December.
    48. Joao F. Gomes, 2001. "Financing Investment," American Economic Review, American Economic Association, vol. 91(5), pages 1263-1285, December.
    49. Jermann, Urban J., 1998. "Asset pricing in production economies," Journal of Monetary Economics, Elsevier, vol. 41(2), pages 257-275, April.
    50. Ilona Babenko & Michael Lemmon & Yuri Tserlukevich, 2011. "Employee Stock Options and Investment," Journal of Finance, American Finance Association, vol. 66(3), pages 981-1009, June.
    51. James R. Brown & Steven M. Fazzari & Bruce C. Petersen, 2009. "Financing Innovation and Growth: Cash Flow, External Equity, and the 1990s R&D Boom," Journal of Finance, American Finance Association, vol. 64(1), pages 151-185, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Giovanni Dell’Ariccia & Dalida Kadyrzhanova & Camelia Minoiu & Lev Ratnovski, 2021. "Bank Lending in the Knowledge Economy," The Review of Financial Studies, Society for Financial Studies, vol. 34(10), pages 5036-5076.
    2. Lorenzo Bencivelli & Beniamino Pisicoli, 2021. "Foreign investors and target firms’ financial structure: cavalry or locusts?," Temi di discussione (Economic working papers) 1327, Bank of Italy, Economic Research and International Relations Area.
    3. Lorenzo Bencivelli & Beniamino Pisicoli, 2022. "Foreign investors and target firms’ financial structure," International Economics, CEPII research center, issue 169, pages 230-251.
    4. Haiping Zhang, 2023. "Trade‐induced sectoral upgrading and upstream financial flows," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(3), pages 859-896, August.
    5. Goto, Shingo & Yanase, Noriyoshi, 2021. "Pension return assumptions and shareholder-employee risk-shifting," Journal of Corporate Finance, Elsevier, vol. 70(C).
    6. Albertus, James F. & Glover, Brent & Levine, Oliver, 2022. "Foreign investment of US multinationals: The effect of tax policy and agency conflicts," Journal of Financial Economics, Elsevier, vol. 144(1), pages 298-327.
    7. Dongya Koh & Raül Santaeulàlia‐Llopis & Yu Zheng, 2020. "Labor Share Decline and Intellectual Property Products Capital," Econometrica, Econometric Society, vol. 88(6), pages 2609-2628, November.
    8. Hyuna Park, 2022. "Warrants in the financial management decisions of innovative firms," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(2), pages 276-295, February.
    9. Chan, Konan & Guo, Re-Jin J. & Wang, Yanzhi A. & Yang, Hsiao-Lin, 2022. "Organization capital and analyst coverage," Journal of Empirical Finance, Elsevier, vol. 69(C), pages 81-105.
    10. Gabriele Beccari & Francesco Marchionne & Beniamino Pisicoli, 2022. "Alternative financing and investment in intangibles: evidence from Italian firms," Mo.Fi.R. Working Papers 174, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    11. Ring, Marius, 2019. "Entrepreneurial Wealth and Employment: Tracing Out the Effects of a Stock Market Crash," MPRA Paper 107020, University Library of Munich, Germany, revised 06 Apr 2021.
    12. Zhang, Haiping, 2022. "Upstream financial flows, intangible investment, and allocative efficiency," Journal of Macroeconomics, Elsevier, vol. 72(C).
    13. Döttling, Robin & Ratnovski, Lev, 2023. "Monetary policy and intangible investment," Journal of Monetary Economics, Elsevier, vol. 134(C), pages 53-72.
    14. Zhefan Piao & Yueqin Lin, 2020. "Financing innovation and enterprises’ efficiency of technological innovation in the internet industry: Evidence from China," PLOS ONE, Public Library of Science, vol. 15(9), pages 1-19, September.
    15. Antonio Falato & Dalida Kadyrzhanova & Jae Sim & Roberto Steri, 2022. "Rising Intangible Capital, Shrinking Debt Capacity, and the U.S. Corporate Savings Glut," Journal of Finance, American Finance Association, vol. 77(5), pages 2799-2852, October.
    16. Pietro Santoleri & Andrea Mina & Alberto Di Minin & Irene Martelli, 2020. "The causal effects of R&D grants: evidence from a regression discontinuity," LEM Papers Series 2020/18, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    17. Whited, Toni M, 2019. "JFE special issue on labor and finance," Journal of Financial Economics, Elsevier, vol. 133(3), pages 539-540.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mindy X. Zhang & Qi Sun, 2016. "Financing Intangible Capital," 2016 Meeting Papers 230, Society for Economic Dynamics.
    2. Peters, Ryan H. & Taylor, Lucian A., 2017. "Intangible capital and the investment-q relation," Journal of Financial Economics, Elsevier, vol. 123(2), pages 251-272.
    3. Bolton, Patrick & Li, Ye & Wang, Neng & Yang, Jinqiang, 2020. "Dynamic Banking and the Value of Deposits," Working Paper Series 2020-13, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    4. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    5. Patrick Bolton & Neng Wang & Jinqiang Yang, 2019. "Optimal Contracting, Corporate Finance, and Valuation with Inalienable Human Capital," Journal of Finance, American Finance Association, vol. 74(3), pages 1363-1429, June.
    6. Nikolov, Boris & Schmid, Lukas & Steri, Roberto, 2019. "Dynamic corporate liquidity," Journal of Financial Economics, Elsevier, vol. 132(1), pages 76-102.
    7. Xiaolan Zhang, 2014. "Who Bears Firm-Level Risk? Implications for Cash Flow Volatility," 2014 Meeting Papers 184, Society for Economic Dynamics.
    8. Hengjie Ai & Dana Kiku & Rui Li & Jincheng Tong, 2021. "A Unified Model of Firm Dynamics with Limited Commitment and Assortative Matching," Journal of Finance, American Finance Association, vol. 76(1), pages 317-356, February.
    9. Simone Lenzu & Francesco Manaresi, 2019. "Sources and implications of resource misallocation: new evidence from firm-level marginal products and user costs," Questioni di Economia e Finanza (Occasional Papers) 485, Bank of Italy, Economic Research and International Relations Area.
    10. DeAngelo, Harry & DeAngelo, Linda & Whited, Toni M., 2011. "Capital structure dynamics and transitory debt," Journal of Financial Economics, Elsevier, vol. 99(2), pages 235-261, February.
    11. Patrick Bolton & Neng Wang & Jinqiang Yang, 2016. "Liquidity and Risk Management: Coordinating Investment and Compensation Policies," 2016 Meeting Papers 1703, Society for Economic Dynamics.
    12. Winston Wei Dou & Yan Ji & David Reibstein & Wei Wu, 2021. "Inalienable Customer Capital, Corporate Liquidity, and Stock Returns," Journal of Finance, American Finance Association, vol. 76(1), pages 211-265, February.
    13. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    14. Andrea L. Eisfeldt & Tyler Muir, 2014. "Aggregate External Financing and Savings Waves," NBER Working Papers 20442, National Bureau of Economic Research, Inc.
    15. Hajda, Jakub & Nikolov, Boris, 2022. "Product market strategy and corporate policies," Journal of Financial Economics, Elsevier, vol. 146(3), pages 932-964.
    16. Sylvain Catherine & Thomas Chaney & Zongbo Huang & David Sraer & David Thesmar, 2022. "Quantifying Reduced‐Form Evidence on Collateral Constraints," Journal of Finance, American Finance Association, vol. 77(4), pages 2143-2181, August.
    17. Machokoto, Michael & Areneke, Geofry, 2020. "Does innovation and financial constraints affect the propensity to save in emerging markets?," Research in International Business and Finance, Elsevier, vol. 52(C).
    18. Missaka Warusawitharana & Toni M. Whited, 2016. "Equity Market Misvaluation, Financing, and Investment," The Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 603-654.
    19. Antonio Falato & Jae W. Sim, 2014. "Why Do Innovative Firms Hold So Much Cash? Evidence from Changes in State R&D Tax Credits," Finance and Economics Discussion Series 2014-72, Board of Governors of the Federal Reserve System (U.S.).
    20. Bontempi, Maria Elena & Bottazzi, Laura & Golinelli, Roberto, 2020. "A multilevel index of heterogeneous short-term and long-term debt dynamics," Journal of Corporate Finance, Elsevier, vol. 64(C).

    More about this item

    Keywords

    Intangible investment; Limited commitment; Employee financing; Debt capacity;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jfinec:v:133:y:2019:i:3:p:564-588. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/505576 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.