Business cycles, nature of firms’ assets, and financing decisions

Abstract

As more advanced economies are being transformed into knowledge-based economies, intangible capital has become a fundamental input for the future competitiveness and growth of these economies and the firms that operate in them. Despite the economic importance of intangible assets, the prevailing opinion among managers and scholars is that intangible assets cannot support debt as tangible assets do. However, recent trends show the opposite, and an increasing proportion of secured syndicated loans in the U.S. include intangible assets as loan collateral. In fact, using data on U.S. firms from 1980 to 2021, this dissertation finds a statistically significant positive relationship between a firm-level measure of intangible assets and financial leverage. Another interesting question is: How does the relationship of tangible and intangible assets with leverage behave across the business cycle? Using data on the three most recent business cycles (2001-2006; 2007-2019; 2020-2021), in most cases, intangible assets enter the standard leverage regression with a higher coefficient during expansion periods than in contraction periods. For tangible assets, the opposite trend is found. These results suggest that firms with more intangible assets find it more difficult to issue debt during contraction periods. In addition, the results might also imply that the relationship between asset tangibility and financial leverage is stronger during contraction periods which is consistent with the literature.

Date of Award	28 Apr 2022
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Diana Bonfim (Supervisor)