Hostname: page-component-7b7567c8c-kwt9d Total loading time: 0 Render date: 2026-11-12T17:12:14.462Z Has data issue: false hasContentIssue false
  • English
  • Français

Intangible Capital and Leverage

Published online by Cambridge University Press:  12 February 2020

Philipp Horsch,
Philip Longoni and
David Oesch
Philipp Horsch
Affiliation:
Horsch, philipp24h@gmail.com, a global management consulting firm
Philip Longoni
Affiliation:
Longoni, philip.longoni@business.uzh.ch, University of Zurich Department of Business Administration
David Oesch*
Affiliation:
Oesch, david.oesch@business.uzh.ch, University of Zurich Department of Business Administration
*
Oesch (corresponding author), david.oesch@business.uzh.ch
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the 'Save PDF' action button.

We investigate the causal effect of intangible capital on leverage. To address endogeneity, we exploit patent invalidations by a U.S. court in which judges are randomly assigned to cases. Differences in judge leniency provide exogenous variation in the probability that firms’ patents are invalidated. Using this probability as an instrument for exogenous losses in intangible capital, we find a patent invalidation leads to a 14.1% reduction in leverage, suggesting that intangible capital causally supports leverage. This local average treatment effect is stronger in firms that use patents as loan collateral and in less creditworthy as well as smaller firms.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 2 , March 2021, pp. 475 - 498
Copyright
© The Author(s). Published by Cambridge University Press on behalf of Michael G. Foster School of Business, University of Washington 2020

Footnotes

We thank an anonymous referee, Andrea Bafundi, Constantin Charles, Jenny Chu, Ettore Croci (discussant), Günther Franke, Jasmin Gider, Xavier Giroud, María Gutiérrez Urtiaga, Michel Habib, Luzi Hail, Jens Jackwerth, Axel Kind, Anja Kunzmann (discussant), Christian Leuz, Paulo Maduro, Paul Malatesta (the editor), Alberto Manconi, Evita Paraskevopoulou, Stephen Penman, Gaétan de Rassenfosse, Pablo Ruiz Verdú, Zacharias Sautner, Markus Schmid, Anna Toldrà Simats, Josep Tribó, Felix Urban, Alexander Wagner; seminar participants at the Carlos III University of Madrid (UC3M), the University of Konstanz, and the University of Zurich; and conference participants at the 2018 FMA European Conference and at the 2017 Annual Conference of the Swiss Society for Financial Market Research for helpful discussions and valuable comments. This paper is part of Longoni’s doctoral dissertation at the University of Zurich. Parts of this paper were written while Horsch was at the University of St. Gallen and a visiting PhD student at New York University and while Longoni was a visiting PhD student at Columbia University. Horsch and Longoni thankfully acknowledge financial support from the Swiss National Science Foundation.

References

Altman, E. “Financial Ratios, Discriminant Analysis and the Prediction of Corporate Bankruptcy.” Journal of Finance, 23 (1968), 589–609.Google Scholar
Angrist, J. D., and Pischke, J.-S.. “Mostly Harmless Econometrics: An Empiricist’s Companion.” Princeton NJ: Princeton University Press (2009).Google Scholar
Atanasov, V., and Black, B.. “Shock-Based Causal Inference in Corporate Finance and Accounting Research.” Critical Finance Review, 5 (2016), 207–304.Google Scholar
Barth, M. E.; Kasznik, R.; and McNichols, M. F.. “Analyst Coverage and Intangible Assets.” Journal of Accounting Research, 39 (2001), 1–34.Google Scholar
Chava, S.; Nanda, V.; and Xiao, S. C.. “Lending to Innovative Firms.” Review of Corporate Finance Studies, 6 (2017), 234–289.Google Scholar
Chilton, A. S., and Levy, M. K.. “Challenging the Randomness of Panel Assignment in the Federal Courts of Appeals.” Cornell Law Review, 101 (2015), 1–56.Google Scholar
Corrado, C. A., and Hulten, C. R.. “How Do You Measure a ‘Technological Revolution’?” American Economic Review, 100 (2010), 99–104.Google Scholar
Dangl, T., and Zechner, J.. “Debt Maturity and the Dynamics of Leverage.” CFS Working Paper Series 547 (2018).Google Scholar
DeAngelo, H.; Gonçalves, A. S.; and Stulz, R. M.. “Corporate Deleveraging and Financial Flexibility.” Review of Financial Studies, 31 (2018), 3122–3174.Google Scholar
Dunner, D. R.; Jakes, J. M.; and Karceski, J. D.. “Statistical Look at the Federal Circuit’s Patent Decisions: 1982–1994.” Federal Circuit Bar Journal, 5 (1995), 151–179.Google Scholar
Eisfeldt, A. L., and Rampini, A. A.. “Leasing, Ability to Repossess, and Debt Capacity.” Review of Financial Studies, 22 (2009), 1621–1657.Google Scholar
Farre-Mensa, J.; Hegde, D.; and Ljungqvist, A.. “What Is a Patent Worth? Evidence from the U.S. Patent ‘Lottery’.” Journal of Finance, 75 (2020), 639–682.Google Scholar
Frank, M. Z., and Goyal, V. K.. “Capital Structure Decisions: Which Factors Are Reliably Important?” Financial Management, 38 (2009), 1–37.Google Scholar
Galasso, A., and Schankerman, M.. “Patents and Cumulative Innovation: Causal Evidence from the Courts.” Quarterly Journal of Economics, 130 (2015), 317–369.Google Scholar
Graham, J. R., and Harvey, C.. “How Do CFOs Make Capital Budgeting and Capital Structure Decisions?” Journal of Applied Corporate Finance, 15 (2002), 8–23.Google Scholar
Graham, J. R., and Leary, M. T.. “A Review of Empirical Capital Structure Research and Directions for the Future.” Annual Review of Financial Economics, 3 (2011), 309–345.Google Scholar
Graham, J. R.; Leary, M. T.; and Roberts, M. R.. “A Century of Capital Structure: The Leveraging of Corporate America.” Journal of Financial Economics, 118 (2015), 658–683.Google Scholar
Hall, M. “Randomness Reconsidered: Modeling the Random Judicial Assignment in the U.S. Courts of Appeals.” Journal of Empirical Legal Studies, 7 (2010), 574–589.Google Scholar
Hall, B. B.; Jaffe, A. B.; and Trajtenberg, M.. “The NBER Patent Citation Data File: Lessons, Insights and Methodological Tools.” NBER Working Paper 8498 (2001).Google Scholar
Harris, M., and Raviv, A.. “The Theory of Capital Structure.” Journal of Finance, 46 (1991), 297–355.Google Scholar
Heider, F., and Ljungqvist, A.. “As Certain as Debt and Taxes: Estimating the Tax Sensitivity of Leverage from State Tax Changes.” Journal of Financial Economics, 118 (2015), 684–712.Google Scholar
Hochberg, Y. V.; Serrano, C. J.; and Ziedonis, R. H.. “Patent Collateral, Investor Commitment, and the Market for Venture Lending.” Journal of Financial Economics, 130 (2018), 74–94.Google Scholar
Imbens, G. W., and Angrist, J. D.. “Identification and Estimation of Local Average Treatment Effects.” Econometrica, 62 (1994), 467–475.Google Scholar
Kleibergen, F., and Paap, R.. “Generalized Reduced Rank Tests Using the Singular Value Decomposition.” Journal of Econometrics, 133 (2006), 97–126.Google Scholar
Kogan, L.; Papanikolaou, D.; Seru, A.; and Stoffman, N.. “Technological Innovation, Resource Allocation and Growth.” Quarterly Journal of Economics, 132 (2017), 665–712.Google Scholar
Larkin, Y. “Brand Perception, Cash Flow Stability, and Financial Policy.” Journal of Financial Economics, 110 (2013), 232–253.Google Scholar
Leary, M. T., and Roberts, M. R.. “Do Peer Firms Affect Corporate Financial Policy?” Journal of Finance, 69 (2014), 139–178.Google Scholar
Lemmon, M. L.; Roberts, M. R.; and Zender, J. F.. “Back to the Beginning: Persistence and the Cross-Section of Corporate Capital Structure.” Journal of Finance, 63 (2008), 1575–1608.Google Scholar
Lemmon, M. L., and Zender, J. F.. “Debt Capacity and Tests of Capital Structure Theories.” Journal of Financial and Quantitative Analysis, 45 (2010), 1161–1187.Google Scholar
Lim, S. C.; Macias, A. J.; and Moeller, T.. “Intangible Assets and Capital Structure.” Working Paper, Texas Christian University (2019).Google Scholar
Long, M. S., and Malitz, I. B.. “Investment Patterns and Financial Leverage.” In Corporate Capital Structures in the United States, Friedman, B., ed. Chicago, IL: University of Chicago Press (1985), 325–352.Google Scholar
Loumioti, M. “The Use of Intangible Assets as Loan Collateral.” Working Paper, University of Texas at Dallas (2013).Google Scholar
Mann, W. “Creditor Rights and Innovation: Evidence from Patent Collateral.” Journal of Financial Economics, 130 (2018), 25–47.Google Scholar
Monga, V. “Accounting’s 21st Century Challenge: How to Value Intangible Assets.” Wall Street Journal, March 21, (2016).Google Scholar
Myers, S. C. “The Capital Structure Puzzle.” Journal of Finance, 39 (1984), 574–592.Google Scholar
Rajan, R. G., and Zingales, L.. “What Do We Know about Capital Structure? Some Evidence from International Data.” Journal of Finance, 50 (1995), 1421–1460.Google Scholar
Rampini, A. A., and Viswanathan, S.. “Collateral and Capital Structure.” Journal of Financial Economics, 109 (2013), 466–492.Google Scholar
Rauh, J. D., and Sufi, A.. “Explaining Corporate Capital Structure: Product Markets, Leases, and Asset Similarity.” Review of Finance, 16 (2012), 115–155.Google Scholar
Roberts, M. R., and Whited, T. M.. “Endogeneity in Empirical Corporate Finance.” In Handbook of the Economics of Finance, Vol. 2, Constantinides, G., Harris, M., and Stulz, R., eds. Amsterdam, Netherlands: Elsevier (2013), 493–572.Google Scholar
Serfling, M. “Firing Costs and Capital Structure Decisions.” Journal of Finance, 71 (2016), 2239–2286.Google Scholar
Shleifer, A., and Vishny, R. M.. “Liquidation Values and Debt Capacity: A Market Equilibrium Approach.” Journal of Finance, 47 (1992), 1343–1366.Google Scholar
Staiger, D., and Stock, J. H.. “Instrumental Variables Regression with Weak Instruments.” Econometrica, 65 (1997), 557–586.Google Scholar
Stock, J. H., and Yogo, M.. “Testing for Weak Instruments in Linear IV Regression.” In Identification and Inference for Econometric Models: Essays in Honor of Thomas Rothenberg, Andrews, D. W. K. and Stock, J. H., eds. New York, NY: Cambridge University Press (2005), 80–108.Google Scholar
Titman, S., and Wessels, R.. “The Determinants of Capital Structure Choice.” Journal of Finance, 42 (1988), 1–19.Google Scholar
Wooldridge, J. M. “Econometric Analysis of Cross Section and Panel Data.” Cambridge, MA: MIT Press (2010).Google Scholar
Zou, H., and Adams, M. B.. “Debt Capacity, Cost of Debt, and Corporate Insurance.” Journal of Financial and Quantitative Analysis, 43 (2008), 433–466.Google Scholar