Intangible Capital and Leverage

Philipp Horsch, Philip Longoni, David Oesch
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
more » ... that intangible capital causally supports leverage. This local average treatment effect is stronger in firms that use patents as loan collateral, in less creditworthy as well as in smaller firms. The deleveraging after patent invalidation is mainly driven by firms reducing short-term debt. JEL Classification: G32, G33, O34
doi:10.5167/uzh-199119 fatcat:6ajgdurldbexrkzosp6j2xhafi