The Rise of Star Firms: Intangible Capital and Competition
Posted: 21 Aug 2018 Last revised: 23 Apr 2019
Date Written: August 13, 2018
There is a divergence in the returns of top-performing firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns of their market power. We show that the divergence is explained by the mismeasurement of intangible capital. In fact, star firms produce more per dollar of invested capital, have higher growth, innovation, and productivity and are not differentially affected by exogenous competitive shocks than other firms. Their pricing power supports their high intangible capital investment. Some exceptional firms may pose concerns due to their potential to foreclose competition in the future.
Keywords: star firms, intangible capital, organizational capital, industry concentration, ROIC, capital expenditure
JEL Classification: G30, G31, G32, L22, L23, L25
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