Ebook Knowledge Capital, Intangible Assets, And Leverage: Evidence From U.S. Agricultural Biotechnology Firms
Technological advances, better management practices, and improved production inputs are driving forces behind the substantial productivity gains experienced by the U.S. agricultural sector. Agricultural biotechnology plays an integral role, and as such, has profoundly influenced the face of U.S. farming, food processing, and food consumption.
Agricultural biotechnology firms participate in a food system where rivalry continues to shift from tangible to intangible assets such as knowledge capital. This situation provides impetus for attempts to better understand the financial management aspects of agricultural biotechnology firms.
Biotechnology firms are characteristic of high technology companies. Firms in general, and high technology firms in particular, are both a set of assets in place and growth opportunities (Myers, 1977; Myers and Majluf, 1984; Rajan and Zingales, 1995). Liu (2001) reminds us that the “essence of a firm in the new economy is its ability to create, transfer, assemble, integrate, protect, and exploit knowledge capital. Knowledge capital underpins competences, and competences underpin the firm’s product and service offering to the market” (Liu, 2001, p. 1). 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 fundamentally influences firm financing decisions.
Capital structure of firms has received extensive theoretical and empirical attention, including the role of intangible assets on optimal leverage (e.g., Rajan and Zingales, 1995). A recent study explores the characteristics and growth of U.S. biotechnology firms (Zucker, Darby, and Brewer, 1998). Their findings reveal a connection between the location and growth of intellectual capital and that of U.S. biotechnology firms. It is apparent from these studies that knowledge capital can influence both the location and capital structure of biotechnology firms. Liu (2001) studied the interaction among biotechnology firms’ knowledge capital, growth opportunities, earnings dynamics, and optimal leverage. Results suggest that investments in research and development and knowledge capital are related to leverage. However, the empirical analysis has not extended to agricultural biotechnology firms.
The research reported in this manuscript 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. The objective is to better understand the role that knowledge capital and other intangible assets have on their debt versus equity financing decisions.
Several categories of firms operate in the agricultural biotechnology industry. Dedicated biotechnology companies (DBCs) are those firms primarily engaged in biotechnology research activities and are often small, private, start-up companies early in their life cycle (Sporleder, 1999). Smaller DBCs often develop “platform technologies” that position the firm for merger, acquisition, or initial public offering. Though innovative, they typically lack the financial or human capital necessary to fund developmental research and commercialize new products. Strategic partnering with larger major corporations with complementary business assets can result. Second, certain major corporations have significant investments in biotechnology though their revenue stream is not fundamentally dependent upon biotechnology-based products or services. Pharmaceutical companies are a third firm type but are primarily oriented toward the human health market rather than toward food or agriculture. The focus of this study is on U.S.-based DBCs.
The remainder of the paper is organized as follows. Background and a brief literature review are presented first, followed by a description of the data and empirical model, and a discussion of the results derived from it. The paper ends with some conclusions and suggestions for additional research.
Posted in :
