Abstract: This paper utilizes a large sample of detailed asset valuation data from M&A transactions to examine the impact of intangible assets on firms’ debt usage. My analysis reveals that tangible assets provide better support for debt than intangibles; nonetheless, the disparity is considerably smaller than previously thought. Intangible assets can support debt financing, with a greater association with cash flow-based rather than asset-based debt. Furthermore, the research highlights the importance of considering heterogeneity among intangibles, presenting a theoretical framework for categorization. A model is developed to elucidate the mechanism underlying the finding that demand shifter intangibles exhibit higher optimal debt levels than production-based intangibles.
Discussant: Dalida Kadyrzhanova, Federal Reserve Board of Governors
Abstract: This paper studies how lenders' ability to monitor collateral and mitigate frictions in collateralization affect credit outcomes. Exploiting law reforms that subject collateral monitoring to information frictions, I show that such reforms trigger credit reallocation from foreign to domestic lenders. Following the legal change, the moral hazard in monitoring collateral by foreign lenders increases. In response, foreign lenders decrease loan issuance and acceptance of movable collateral from treated firms, while increasing the use of covenants. The reallocation effects translate into a reduction in firms' employment and net income in the post-period. These results highlight the importance of friction associated with collateralization in shaping credit markets.
Discussant: Alexandre Corhay, University of Toronto
Abstract: This paper deepens understanding of why US firms are staying private longer, focusing on the importance of legal protection of intellectual property. I demonstrate that legal changes that increased the appeal of trade secrets over patents lead firms to delay their IPOs. Unlike patents, trade secrets are not publicly disclosed and lose their value once revealed. To protect these secrets, firms maintain confidentiality and opt to stay private. My identification strategy exploits two U.S. legal acts that enhanced trade secret protection and one court decision that weakened patent protection. I find that the staggered enhancement of state trade secret protections extended the period firms remained private by 9 to 13 months accounting for up to one-fifth of the increased duration of firms staying private. The federal trade secret act further strengthened protections in certain states, increasing the private duration by an additional 16 months for affected firms. Finally, weakened legal protection for software patents led VC-backed firms to delay their IPOs by 19 months.
Discussant: Jan Bena, University of British Columbia
