Out of Equilibrium and Intangible Assets

The new evidence provided by the codification of intangible assets in national accounts and firm statistics offers the opportunity to test the Schumpeterian creative response hypothesis that: i) the generation and exploitation of knowledge are characterized by high levels of risk; ii) firms in equilibrium are reluctant to undertake risky activities; iii) the farther away from equilibrium conditions, the stronger the commitment to innovation efforts by firms iv) that are heterogeneous in their reactivity and entrepreneurship levels. Empirical evidence for US listed companies over the period 1977-2016 confirms a U-shaped relationship between out-of-equilibrium performance and growth in the intensity of intangible capital. Entrepreneurship levels, measured by the extent of the firm creative response, differs with firm size, age, and industry. Precisely, we estimate a deeper U-shaped relationship between performance and growth in intangibles intensity for small and young firms and, on average, for firms in high-tech industries. Our results are robust to different econometric tests performed on alternative samples, and we also propose an original instrumental variable strategy that further strengthens the validity of our results. We conclude that the firm creative response is an out-of-equilibrium phenomenon, stronger in the case of disappointing performances and sharper for small, young, and high-tech firms