intangible assets and capital structure.pdf

Intangible assets and capital structure Steve C. Lim, Texas Christian University Antonio J. Macias, Baylor University Thomas Moeller, Texas Christian University August 2014 Abstract Tangible assets, many of which can be easily collateralized, support debt. Accordingly, the amount of tangible assets is well-established as a principal driver of leverage. As investing is shifting more and more from tangible to intangible assets, it becomes crucial to understand to what extent intangible assets support debt. Analyzing this question empirically has been largely unfeasible due to the lack of information about firms’ self-created intangible assets. We take advantage of a recent accounting rule change that allows us to observe market-based valuations of identifiable intangible assets of firms that are acquired. In these firms, both tangible and intangible assets are positively related to leverage. Intangible assets have the strongest effect on leverage in technology firms and in firms with low tangible asset intensity. On a per dollar basis, intangible assets support approximately half as much debt as tangible assets. Key words: Capital structure, leverage, intangible assets We thank Houlihan Lokey for providing the MA purchase price allocation data. Antonio Macias and Thomas Moeller wish to thank the Neeley Summer Research Awards program and the Luther King Capital Management Center for Financial Studies in the Neeley School of Business at TCU for their financial support for this research. All errors are our own. Contact information: Steve C. Lim, TCU Box 298530, Fort Worth, TX 76129, s.lim@, 817.257.7536. Antonio J. Macias, One Bear Place #98004, Waco, TX 76129, antonio_jesus@, 765.412.6397. Thomas Moeller, TCU Box 298530, Fort Wort