The (Self-) Funding of Intangibles

Enrico Perotti, Döttling, Robin and Tomislav Ladika
Authors registered in the RePEc Author Service: Robin Döttling

No 12618, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model how technological change leads to a shift in corporate investment towards intangible capital, and test its implications for corporate financial policy. While tangible assets can be purchased and funded externally, most intangible capital is created by skilled workers investing their human capital, so it requires lower upfront outlays. Indeed, U.S. high-intangibles firms have larger free cash flows and lower total investment spending, and do not appear more financially constrained. We model and test how these firms optimally retain cash for both a precautionary as well as a retention motive. The optimal reward for risk-averse human capital involves deferred compensation and a commitment to retain cash. High-intangibles firms also should favor a payout policy of repurchases over dividends to avoid penalizing unvested claims. Our empirical evidence supports these predictions.

Keywords: Technological change; Intangible assets; Cash holdings; Human capital; Corporate leverage; Equity grants; Deferred equity; Share vesting (search for similar items in EconPapers)
JEL-codes: G32 G35 J24 J33 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-cfn, nep-ino and nep-knm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Working Paper: The (Self-)Funding of Intangibles (2016)
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