confirming the well-established proposition in the law and finance literature that weaker legal frameworks diminish the availability of external resources. The model also shows that the allocation of investable resources between fixed and intangible assets is related to the protection of property rights. In particular, we show that it may be efficient for a firm, which operates in markets with weaker property rights, to choose more investment in fixed assets relative to intangible assets. The strength of this substitution effect will depend on the general protection of property rights, and maybe particularly on the strength of a country's intellectual property rights. The model thus shows that two effects affect the choice of a firm's asset structure in countries with imperfect financial markets and weaker property rights a lack of finance and an asset substitution effect The paper investigates empirically for a large number of countries the finance and asset substitution effects. We find that weaker property rights are associated with lower firm growth on account of both effects: firms get less financing, and thus underinvest overall; and they underinvest in intangible assets relative to fixed assets. empirically, the two effects appear to be equally important drivers of growth in sectoral value added for a large number of countries. USing firm specific data, we furthermore show that firms in developing countries invest relatively more in fixed assets despite a legal framework that little collateral value to fixed assets. We confirm that this occurs because these countries' property rights to protect intangible assets are even worse than those protecting fixed assets are. As a result. firms in these countries favor investments in fixed assets over investments in intangible assets. At the same time, firms in developing countries have less long-term financing for a given amount of fixed assets, as weaker creditor rights diminish the collateral value of their fixed assets The paper is structured as follows. Section 2 reviews the related literature. Section 3 describes the finance and asset substitution effect using a simple framework and ance and asset substitution effect empirically. Section 4 presents the data used in the empirical work. Section 5 presents the empirical results. Section 6 concludes Intellectual property rights are monopoly rights and broadly include patents(property rights to inventions trademarks(property rights for distinctive commercial marks or symbols/S, artists, and composers ),and and other technical improvements), copyrights(property rights to author3 confirming the well-established proposition in the law and finance literature that weaker legal frameworks diminish the availability of external resources. The model also shows that the allocation of investable resources between fixed and intangible assets is related to the protection of property rights. In particular, we show that it may be efficient for a firm, which operates in markets with weaker property rights, to choose more investment in fixed assets relative to intangible assets. The strength of this substitution effect will depend on the general protection of property rights, and maybe particularly on the strength of a country’s intellectual property rights.3 The model thus shows that two effects affect the choice of a firm’s asset structure in countries with imperfect financial markets and weaker property rights: a lack of finance and an asset substitution effect. The paper investigates empirically for a large number of countries the finance and asset substitution effects. We find that weaker property rights are associated with lower firm growth on account of both effects: firms get less financing, and thus underinvest overall; and they underinvest in intangible assets relative to fixed assets. Empirically, the two effects appear to be equally important drivers of growth in sectoral value added for a large number of countries. Using firm specific data, we furthermore show that firms in developing countries invest relatively more in fixed assets despite a legal framework that gives little collateral value to fixed assets. We confirm that this occurs because these countries’ property rights to protect intangible assets are even worse than those protecting fixed assets are. As a result, firms in these countries favor investments in fixed assets over investments in intangible assets. At the same time, firms in developing countries have less long-term financing for a given amount of fixed assets, as weaker creditor rights diminish the collateral value of their fixed assets. The paper is structured as follows. Section 2 reviews the related literature. Section 3 describes the finance and asset substitution effect using a simple framework and presents our methodology to disentangle the finance and asset substitution effect empirically. Section 4 presents the data used in the empirical work. Section 5 presents the empirical results. Section 6 concludes. 3 Intellectual property rights are monopoly rights and broadly include patents (property rights to inventions and other technical improvements), copyrights (property rights to authors, artists, and composers), and trademarks (property rights for distinctive commercial marks or symbols)