Intangible assets and capital structure

Tangible assets, many of which can be easily collateralized, support debt. Accordingly, the amount of tangible assets is well-established as a principal driver of leverage. As investing is shifting more and more from tangible to intangible assets, it becomes crucial to understand to what extent intangible assets support debt. Analyzing this question empirically has been largely unfeasible due to the lack of information about firms’ self-created intangible assets. We take advantage of a recent accounting rule change that allows us to observe market-based valuations of identifiable intangible assets of firms that are acquired. In these firms, both tangible and intangible assets are positively related to leverage. Intangible assets have the strongest effect on leverage in technology firms and in firms with low tangible asset intensity. On a per dollar basis, intangible assets support approximately half as much debt as tangible assets.