Understanding Innovative Investment: Intangible Investment and R&D Expenditures of Korean Firms

Why did the Great Recession lead to such a slow recovery? I build a model where heterogeneous firms invest in physical and intangible capital, and can default on their debt. In case of default, intangible assets are harder to seize by creditors. Hence, intangible capital faces higher financing costs. This differential is exacerbated in a financial crisis, when default is more likely and aggregate risk bears a higher premium. The resulting fall in intangible investment amplifies the crisis, and gradual intangible spillovers to other firms contribute to its persistence. Using panel data on Spanish manufacturing firms, I estimate the model matching firm-level moments regarding intangibles and financing. The model captures the extent and components of the Great Recession in Spanish manufacturing, whereas a standard model without endogenous intangible investment would miss more than half of the GDP fall. A policy of transfers conditional on firm age could speed up the recovery, as young firms tend to be more financially constrained, particularly regarding intangible investment. Conditioning transfers on firm size or subsidizing credit (as in current E.U. policy) appears to be less effective.

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Intangible investment and human resources

Change, Transformation and Development ◽

10.1007/978-3-7908-2720-0_13 ◽

2003 ◽

pp. 229-256 ◽

Cited By ~ 2

Author(s):

Michael Peneder

Keyword(s):

Human Resources ◽

Intangible Investment

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Financial constraints and marketing investment: evidence from text analysis

European Journal of Marketing ◽

10.1108/ejm-01-2019-0090 ◽

2020 ◽

Vol 54 (3) ◽

pp. 525-545 ◽

Cited By ~ 2

Author(s):

Sagarika Mishra ◽

Mike T. Ewing

Keyword(s):

Financial Constraints ◽

Ordinary Least Squares ◽

Mediating Effect ◽

Financial Constraint ◽

Content Type ◽

Specific Analysis ◽

Intangible Investments ◽

Negative Effect ◽

Brand Capital ◽

Intangible Investment

Purpose The purpose of this study to examine the effect of financial constraint on intangible investment because intangible investment provides an overall picture of marketing investment and activity. Intangible investment also plays a significant role in facilitating future sales. Using a new measure of intangible investment (Peters and Taylor, 2017), the authors first establish that intangible investment is positively related with future sales. Then, using a new text-based measure of financial constraint, the authors show that financial constraint has a significant negative effect on future intangible investments after controlling for other factors. Intangible investment has three components. The first is R&D, the second is 30 per cent of selling and general administrative expense (SGA) and the third is other intangibles. The authors find that the negative and significant effect of financial constraint on 30 per cent SGA is stronger. This indicates that financially constrained firms reduce marketing related investments. The authors then considered firm size and found that smaller firms facing financial constraint continue to increase their intangible investments, whereas larger firms reduce their intangible investment. As a robustness test, the authors use advertising expenditure as a measure of promotion related investment and find that financial constraint has a negative effect on advertising spending. The authors then use two traditional measures of financial constraint in their analysis to compare with the new text-based measure. Design/methodology/approach The authors use ordinary least squares with cluster robust standard error to conduct their empirical analysis. Findings First the authors establish that intangible investment positively affects future sales. Further the authors find that financial constraint negatively affects intangible investment. Moreover, financial constraint negatively affects the brand capital of intangible investment. Research limitations/implications The authors did not conduct any industry specific analysis to see how financial constraints affect intangible investment across different industries. Industry specific analysis is important because in some industries/sectors intangibles are clearly more important than in others, so this is an important avenue for future research. It will also be interesting to explore if and how financial constraint has a mediating effect on sales growth via intangible investment and different components of intangibles. Practical implications This study identifies another important factor that can negatively affect brand capital investment. Originality/value The authors have used a measure of financial constraint and text mined all the annual reports of US firms for the period of 1994-2016 to compute this measure.

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Measuring the Other Half: New Measures of Intangible Investment from the ONS

National Institute Economic Review ◽

10.1177/002795011924900111 ◽

2019 ◽

Vol 249 ◽

pp. R17-R29

Author(s):

Josh Martin

Keyword(s):

Intangible Assets ◽

Physical Capital ◽

Evidence Base ◽

The Other ◽

National Accounts ◽

Ongoing Work ◽

Alternative Approaches ◽

The Uk ◽

Intangible Investment ◽

Made In

Only half of investment by firms is in physical capital, such as buildings and machinery. The other half is in intangible assets, such as branding, software and training. This has been true for the past two decades or more in the UK, but only if you step beyond the measures in the National Accounts, which include only some of the recognised intangible assets. This paper surveys ongoing work at the Office for National Statistics to develop measures of investment in intangible assets, using new insights and innovative approaches. In particular, this paper reviews developments in three areas: in-house branding investments, employer-funded training investments, and in-house investments in organisational capital. We reconsider some of the key assumptions made in the literature and propose alternative approaches to measurement. The paper concludes by considering implications of this work, and identifies some of the remaining gaps in the evidence base for measuring intangible assets.

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