KNOWLEDGE CAPITAL, INTANGIBLE ASSETS, AND LEVERAGE: EVIDENCE FROM U.S. AGRICULTURAL BIOTECHNOLOGY FIRMS

Firms in general, and high technology firms such as biotechnology firms in particular, are both a set of assets in place and growth opportunities. This has important implications for managerial decision-making. Knowledge capital motivates exploitation of growth options, which affects firm cash flow. In turn, the level and volatility of firm cash flow influences firm financing decisions. Previous studies suggest that knowledge capital can influence both the location and capital structure of firms in the biotechnology industry. However, the empirical analyses have not extended to agricultural biotechnology firms. The research reported here is motivated by a desire to understand the role of knowledge capital and other intangible assets in capital structure decisions of U.S. agricultural biotechnology firms. Quantitative results indicate that leverage is negatively related to growth and non-debt tax shields. Asset tangibility, size, profitability, and uniqueness are positively related to leverage. Depending on the metric employed for leverage, the empirical models explain up to approximately 75% of the variation in leverage. Estimates of elasticities reinforce the importance of intangible assets such as knowledge capital and tax shields in capital structure choice and add a significant new component to understanding the financial management decisions of agricultural biotechnology firms.