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Tangible and intangible investment in corporate finance

Author

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  • Shuangling, Zhao
  • Guohua, Cao
  • Lijuan, Wu

Abstract

Research and development (R&D) investment has increased dramatically in recent decades but not been explored extensively implications for the firms’ liquidity management. In this paper, we propose a dynamic model of a financially constrained firm about R&D and physical investment, financing and risk management, and then analyze the market-timing decisions about the corporate liquidation, external equity, credit debt and payout. And the comparative static analysis about R&D is also given. We find that the firm value changes sharply with the obsolescence rate of R&D, the volatility of R&D stocks will decrease the firm value-capital ratio, and R&D investment is more impressionable to financing frictions than physical investment. Our model and analysis provide the new insight into the investment and financing of intangible capital.

Suggested Citation

  • Shuangling, Zhao & Guohua, Cao & Lijuan, Wu, 2019. "Tangible and intangible investment in corporate finance," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818300081
    DOI: 10.1016/j.najef.2019.100991
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