Perpustakaan Digital ITB

Firms finance intangible investment through employee compensation contracts. In a dy- namic model in which intangible capital is embodied in a firm’s employees, we analyze the firm’s optimal decisions on intangible capital investment, employee compensation con- tracts, and financial leverage. Employee financing is achieved by delaying wage payments in the form of future claims. We show that intangible capital investment is highly corre- lated with employee financing but not with debt issuance or regular equity refinancing. In our quantitative analysis, we show that this new channel of employee financing explains the cross-industry differences in leverage and financing patterns.