Who are America's Star Firms?

68 Pages Posted: 21 Aug 2018

See all articles by Meghana Ayyagari

Meghana Ayyagari

George Washington University - School of Business

Asli Demirgüç-Kunt

World Bank - Development Research Group; World Bank

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Date Written: August 13, 2018

Abstract

There is wide spread concern about a growing gap between top-performing publicly listed firms and the rest of the economy and the implications of this for rising inequality in the U.S. Using conventional return calculations, there is indeed a widening gap between star firms (defined as those in top 10% of return on invested capital in any year) and the rest of the economy over time, especially in industries that rely on a skilled labor force. However, once measurement error in intangible capital is accounted for, this gap shrinks dramatically and has not been widening over time. While pricing power, as measured by markups, predicts star firm status, a large fraction of star firms have low markups and there is no evidence that star firms are cutting output or investment more than other firms for the same markup. The effect of star status is persistent. Five years later, star firms have higher growth, pro ts, and Tobin's Q. A small subset of exceptional firms may pose more pressing policy concerns with much higher returns and the potential to exercise market power in the future.

Keywords: star firms, intangible capital, organizational capital, industry concentration, ROIC, capital expenditure

JEL Classification: G30, G31, G32, L22, L23, L25

Suggested Citation

Ayyagari, Meghana and Demirgüç-Kunt, Asli and Maksimovic, Vojislav, Who are America's Star Firms? (August 13, 2018). Available at SSRN: https://ssrn.com/abstract=3230154 or http://dx.doi.org/10.2139/ssrn.3230154

Meghana Ayyagari

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Asli Demirgüç-Kunt

World Bank - Development Research Group ( email )

United States
202-473-7479 (Phone)
202-522-1155 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/ademirguckunt/

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Vojislav Maksimovic (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

Van Munching Hall
College Park, MD 20742-1815
United States
301-405-2125 (Phone)
301-314-9157 (Fax)

HOME PAGE: http://scholar.rhsmith.umd.edu/vmax/home

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