Asset Tangibility, Cash Holdings, and Financial Development

Rising intangible assets on corporate balance sheets around the world could limit borrowing capacity and consequently hinder growth if firms must preserve cash and forgo investment opportunities. We show that financial development lowers the sensitivity of cash holdings to tangible assets and promotes firm growth. The attenuating effect of financial development on cash-tangibility sensitivity is stronger for younger, smaller, and R&D intensive firms. We also find that sectors with a smaller proportion of tangible assets grow faster in countries with more developed financial markets. Our analysis reveals an important asset tangibility channel through which financial development facilitates firm growth.