Innovate to Borrow: How Intangibles Shape Finance and Growth

Vladimir Asriyan, Alberto Martin, Guillermo Ordoñez and Victoria Vanasco

No 1597, Working Papers from Barcelona School of Economics

Abstract: We study a dynamic economy in which heterogeneous entrepreneurs invest in either generic or innovative technologies, the latter relying on intangible, firm-specific assets whose payoffs are realized through learning or experimentation (e.g., know-how, R&D). A key friction is that, to finance investment, entrepreneurs can pledge assets but not cash flows. We show that innovative technologies can relax financing constraints by increasing the value of continuation relative to default, thereby enabling borrowing against future cash flows. Technology choice is non-monotonic in productivity: low-productivity entrepreneurs innovate-to-experiment and delay investment, intermediate types adopt generic technologies, and high-productivity entrepreneurs innovate-to-scale and relax financial constraints. In equilibrium, financial frictions distort both the allocation of capital and the choice of technology, leading to insufficient experimentation. The model helps us understand how innovation is adopted across firms and economies and has novel policy implications.

Keywords: borrowing capacity; experimentation; financial frictions; innovation; intangible capital; misallocation; technology choice (search for similar items in EconPapers)
JEL-codes: D24 E22 G32 O31 O40 (search for similar items in EconPapers)
Date: 2026-09
New Economics Papers: this item is included in nep-ent and nep-sbm
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