Intangible investments such as research and development, brands, software, and organizational capital change how firms access and price external finance. Jonathan Haskel at Imperial College Business School and Stian Westlake at Nesta argue in Capitalism without Capital that the economy’s rising stock of intangible capital reshapes firm risk profiles and lender incentives. Classic capital-structure theory from Franco Modigliani at MIT and Merton Miller at the University of Chicago shows that in frictionless markets financing choice is neutral, but real-world frictions make intangible-heavy firms behave differently.
Collateral, information, and the pecking order
Intangibles typically have low collateral value: patents and brands are hard to repossess or value reliably. That reduces banks’ willingness to supply secured debt at low cost, often raising the cost of debt or shortening maturities. Stewart C. Myers at MIT Sloan emphasized information asymmetry and agency costs as drivers of the pecking order: firms prefer internal funds, then debt, then equity. Because intangible investments increase valuation uncertainty, firms with high intangible intensity tend to retain earnings longer and rely more on equity-like instruments or relationship-based finance to avoid diluting insiders or paying penalizing interest.
Financing instruments and territorial effects
Practically, firms adapt by using more equity financing, venture capital, convertible securities, or covenant-heavy loans that accommodate intangible risk. Haskel and Westlake note that ecosystems matter: regions with deep equity markets and specialized investors, such as technology clusters, better support intangible investment than regions dominated by traditional banks. This has cultural and territorial consequences: intangible-rich industries cluster in cities with talent pools and specialized professional services, widening geographic disparities in access to finance. Environmentally, many intangible investments (software, platforms) have lower direct material footprints, shifting local employment from manufacturing to knowledge work with different social and policy implications.
Overall, intangible assets increase the importance of governance, disclosure, and relationship capital: better financial reporting and stronger intellectual-property regimes lower information frictions and reduce financing costs. Policymakers and financial institutions that improve valuation standards and legal protections for intangibles can thus materially influence corporate financing choices and the wider distribution of innovative activity. The shift toward intangible capital is not merely an accounting change but a structural reorientation of how firms fund growth and how territories specialize economically.