Rising Intangible Capital, Shrinking Debt Capacity, and the US Corporate Savings Glut

This paper explores the connection between rising intangible capital and the secular upward trend in US corporate cash holdings. We calibrate a dynamic model with two productive assets, tangible and intangible capital, in which only tangible capital can serve as collateral. We highlight the following points: 1) a shift toward intangible capital shrinks firms' debt capacity and leads them to hold more cash; 2) the effect accounts for 3/4 of the observed trend in average cash ratios; 3) it also accounts for the upward trend of cash ratios in the cross-section of small and large firms and in the aggregate.