One of the distinguishing characteristics of IT firms is that their assets are mainly composed of intangible assets such as patents, software, research and development potential, innovation capacity etc. rather than the physical assets such as land, buildings, machinery etc. In contrast, for a given amount of total assets, a traditional company in the manufacturing industry typically has a higher amount of physical asset. With this issues in mind, answer the following questions:

a) For a given net worth level, which industry would be expected to have easier access to bank loans? Why/Why not?

b) Do you think having a relatively large amount of intangible assets and low amount of tangible assets can affect the IT firms' incentives to invest in safe financial assets in order to borrow from banks? Why or why not?

Answer rating: 100% (QA)

a For a given net worth level traditional companies in the manufacturing industry would likely have ... View the full answer