Big Data in Finance and the Growth of Large Firms

34 Pages Posted: 2 May 2018

See all articles by Juliane Begenau

Juliane Begenau

Stanford University - Graduate School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Maryam Farboodi

Princeton University - Bendheim Center for Finance

Laura Veldkamp

New York University - Stern School of Business; National Bureau of Economic Research (NBER)

Date Written: April 2018

Abstract

One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.

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Suggested Citation

Begenau, Juliane and Farboodi, Maryam and Veldkamp, Laura, Big Data in Finance and the Growth of Large Firms (April 2018). NBER Working Paper No. w24550. Available at SSRN: https://ssrn.com/abstract=3170769

Juliane Begenau (Contact Author)

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States
6507245661 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Maryam Farboodi

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States

Laura Veldkamp

New York University - Stern School of Business ( email )

44 West 4th St. - Suite 7-180
New York, NY 100012
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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