## Financial Constraints, Intangible Assets, and Firm Dynamics: Theory and Evidence

_IMF Working Papers, May 14, 2014_

## Source details

**Canonical URL:** [Financial Constraints, Intangible Assets, and Firm Dynamics: Theory and Evidence](https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-constraints-intangible-assets-and-firm-dynamics-theory-and-evidence-41563)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/financial-constraints-intangible-assets-and-firm-dynamics-theory-and-evidence-41563/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/financial-constraints-intangible-assets-and-firm-dynamics-theory-and-evidence-41563/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/financial-constraints-intangible-assets-and-firm-dynamics-theory-and-evidence-41563/bundle-manifest.json)

## Bibliographic details
- Authors: Sophia Chen
- Published: May 14, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484393741.001

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### Summary and key findings
- The study investigates whether firms' reliance on intangible assets is an important determinant of financing constraints.
- New measures of firm-level physical and intangible assets are constructed using accounting information on U.S. public firms.
- Empirical findings:
  - Firms with a higher share of intangible assets in total assets start smaller.
  - Firms with a higher share of intangible assets in total assets grow faster.
  - Firms with a higher share of intangible assets in total assets have higher Tobin’s q.
  - Asset tangibility predicts firm dynamics and Tobin’s q up to 30 years but has diminishing predicative power.

### Methodology and measures
- Construction of new measures of physical and intangible assets at the firm level using accounting information on U.S. public firms.
- Empirical analysis links the share of intangible assets in total assets to firm entry size, growth rates, and market valuation (Tobin’s q).

### Theoretical model and mechanism
- A model of endogenous financial constraints is developed in which firm size and value are limited by the enforceability of financial contracts.
- The core mechanism: asset tangibility matters because physical and intangible assets differ in their residual value when the contract is repudiated.
- The mechanism is described as qualitatively important to explain stylized facts of firm dynamics and Tobin’s q.

### Subject coverage and keywords
- Subjects: Aging, Asset and liability management, Asset valuation, Economic theory, Financial frictions, Financial institutions, Population and demographics, Stocks, Technology
- Keywords: Aging, and administrative, asset tangibility, Asset valuation, entrant firm, Financial constraints, Financial frictions, firm dynamics, general, intangible assets, market value, production parameter, selling, share of intangible assets, Stocks, Tobin’s q, WP

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## Content in this bundle

- **1. Estimated Physical Depreciation Rate**
  - [1. Estimated Physical Depreciation Rate (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1488.pdf.md){rel="alternate" type="text/markdown"}
  - [1. Estimated Physical Depreciation Rate (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1488.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/financial-constraints-intangible-assets-and-firm-dynamics-theory-and-evidence-41563_