Credit Constraints in Intangible Investments

This paper, using Japanese firm level data, empirically analyzes the credit constraints in intangible investments. We estimate investment functions where cash flow is used as a key explanatory variable. We then observe differences in the sensitivity of investments to cash flow by the type of assets, industry, firm size, and firm age. According to the estimation results, investments in intangible assets are more sensitive to internal capital compared with investments in tangible assets, which suggest the existence of market failure in the financial markets. This market failure is more serious for small- and medium-sized enterprises (SMEs) and young firms. On the other hand, actual policies to promote investments are concentrated on tangible assets with the exception of R&D investment. The analysis of this paper suggests that investment tax credits and financial support for SMEs should focus more on intangible investments.

The English version of this paper is 12-E-045.