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Knowledge Capital, Intangible Assets, and Leverage: Evidence from U.S. Agricultural Biotechnology Firms

  • Sporleder, Thomas L.
  • Moss, Leeann E.

Agricultural biotechnology firms are high technology companies. Firms in general, and high technology firms in particular, are a set of both assets in place and growth opportunities. This has important implications for managerial decision-making. Knowledge capital motivates exploitation of growth options, which affects firm cash flow. In turn, the level and volatility of firm cash flow influences firm financing decisions. Previous studies suggest that knowledge capital can influence both the location and capital structure of firms in the biotechnology industry. However, empirical analysis has not extended to agricultural biotechnology firms. This research helps in understanding the role of knowledge capital and other intangible assets in capital structure decisions of U.S. agricultural biotechnology firms. Quantitative results indicate that leverage is negatively related to growth and nondebt tax shields. Asset tangibility, size, profitability, and uniqueness are positively related to leverage. Using various characterizations of leverage, our models explain up to approximately 75% of the variation in leverage. Empirically generated elasticities buttress the importance of intangible assets such as knowledge capital and tax shields in capital structure choice. This analysis adds a significant new component to understanding the financing decisions of agricultural biotechnology firms.

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File URL: http://purl.umn.edu/8123
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Article provided by International Food and Agribusiness Management Association (IAMA) in its journal International Food and Agribusiness Management Review.

Volume (Year): 07 (2004)
Issue (Month): 02 ()
Pages:

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Handle: RePEc:ags:ifaamr:8123
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  1. Rajan, Raghuram G & Zingales, Luigi, 1995. " What Do We Know about Capital Structure? Some Evidence from International Data," Journal of Finance, American Finance Association, vol. 50(5), pages 1421-60, December.
  2. Thomas L. Sporleder & LeeAnn E. Moss, 2002. "Knowledge Management Frontier in the Global Food System: Network Embeddedness and Social Capital," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(5), pages 1345-1352.
  3. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
  4. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  5. Banerjee, Saugata & Heshmati, Almas & Wihlborg, Clas, 1999. "The Dynamics of Capital Structure," SSE/EFI Working Paper Series in Economics and Finance 333, Stockholm School of Economics, revised 12 May 2000.
  6. Bradley, Michael & Jarrell, Gregg A & Kim, E Han, 1984. " On the Existence of an Optimal Capital Structure: Theory and Evidence," Journal of Finance, American Finance Association, vol. 39(3), pages 857-78, July.
  7. Lynne G. Zucker & Michael R. Darby & Marilynn B. Brewer, 1994. "Intellectual Capital and the Birth of U.S. Biotechnology Enterprises," NBER Working Papers 4653, National Bureau of Economic Research, Inc.
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