Date of Award

Spring 1-1-2014

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Finance

First Advisor

Sanjai Bhagat

Second Advisor

Mattias Nilsson

Third Advisor

Iulian Obreja

Fourth Advisor

Yongmin Chen

Fifth Advisor

Jeffrey Pontiff

Abstract

Recent literature highlights the importance of the stock of intangible assets in corporate financial policies and asset pricing; however, little is known about corporate behavior in the accumulation of intangible assets. I develop and empirically test a framework in which firms can invest in intangible assets to protect their growth opportunities in tangible assets from rivals' preemptive threats. I use the disruptive and transformational advances in information technology of the mid-1990s as an exogenous shock to the feasible investment opportunities in intangible assets. I document that firms in more competitive industries are increasingly sensitive in their intangible investments to Tobin's q, and decreasingly responsive in their tangible investment to Tobin's q after the mid-1990s. The findings are consistent with a real options framework whereby firms can invest in intangibles to differentiate and preserve growth opportunities from competitors and correspondingly delay investment in tangible assets. Results are consistent with some seemingly conflicting aggregate trends in the data and are robust to a battery of specification tests including measurement error corrections in Tobin's q, and survivorship bias.

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