We rationalise our empirical findings with a theoretical model, adding liquidity risk and moral hazard
to the seminal Diamond and Dybvig (1983) model. Information asymmetries allow investors to divert assets and default on bank loans, a problem that is particularly strong if asset tangibility is low, for two reasons. First, intangible investments can be more
easily diverted as they are harder to assess by outsiders. Second, failing intangible investments leave the bank with relatively low collateral value, reducing the value of claims on the bank. This makes it attractive for investors with successful projects
to divert even if the bank can seize their deposit claims. The effect of liquidity creation by banks on investment is thus hampered by asset intangibility, as it is harder for banks to make loans against intangible assets, in line with our empirical findings.