Financing intangible capital

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 of intangible investment, employee compensation contracts, and financial leverage. Employee financing is achieved by delaying wage payments in the form of future claims. We document that intangible capital investment is highly correlated with employee financing, but not with debt issuance or regular equity refinancing. In the quantitative analysis, we show that this new channel of employee financing can explain the cross-industry differences in leverage and financing patterns.

Monetary Policy and Intangible Investment

“…Thus, they cannot be purchased, but need to be built over a period of time. Moreover, the creation of intangible assets requires skilled human capital that is costly to hire and fire (Sun and Xiaolan, 2019;Döttling et al, 2020). Peters and Taylor (2017) confirm that intangible capital adjusts slower than tangible capital to changes in investment opportunities, consistent with higher investment adjustment costs.…”

Monetary Policy and Intangible Investment

“…Thus, they cannot be purchased, but need to be built over a period of time. Moreover, the creation of intangible assets requires skilled human capital that is costly to hire and fire (Sun and Xiaolan, 2019;Döttling et al, 2020). Peters and Taylor (2017) confirm that intangible capital adjusts slower than tangible capital to changes in investment opportunities, consistent with higher investment adjustment costs.…”

The economic policy cycle and public debt in México. A retrospective analysis of 2012-2016 period

“…For example, human capital refers to company personnel, who apply the knowledge, skills and abilities to develop work activities (Antoni, Maug, & Obernberger, 2019). Organizational capital refers to experience and tacit knowledge in the organization; It is presented in the form of manuals of procedures, processes, structures and databases with information about the company's operations (Sun & Xiolan, 2019). For its part, technological capital explains the degree of systematization of processes in the organization; it is expressed in the form of a PC, office equipment and other peripheral elements for the company's operations (Badinger, Egger, & von Ehrlich, 2019).…”