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Intangible Capital and Leverage


Horsch, Philipp; Longoni, Philip; Oesch, David (2019). Intangible Capital and Leverage. SSRN 2906283, University of Zurich.

Abstract

We investigate the causal effect of intangible capital on leverage. To address endogeneity, we exploit patent invalidations by the US Court of Appeals for the Federal Circuit, where 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 who use patents as loan collateral, in less creditworthy and in smaller firms. The deleveraging after patent invalidation is mainly driven by firms reducing short-term debt.

Abstract

We investigate the causal effect of intangible capital on leverage. To address endogeneity, we exploit patent invalidations by the US Court of Appeals for the Federal Circuit, where 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 who use patents as loan collateral, in less creditworthy and in smaller firms. The deleveraging after patent invalidation is mainly driven by firms reducing short-term debt.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Business Administration
Dewey Decimal Classification:330 Economics
Language:English
Date:19 September 2019
Deposited On:05 Feb 2021 08:24
Last Modified:05 Feb 2021 08:24
Series Name:SSRN
Number of Pages:38
ISSN:1556-5068
Additional Information:forthcoming Journal of Financial and Quantitative Analysis
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2906283
Other Identification Number:merlin-id:20713

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