Who are America's Star Firms?

70 Pages Posted: 28 Aug 2018

See all articles by Meghana Ayyagari

Meghana Ayyagari

George Washington University - School of Business

Asli Demirguc-Kunt

World Bank

Vojislav Maksimovic

University of Maryland - Robert H. Smith School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 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 percent 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, profits, 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: Plastics & Rubber Industry, Business Cycles and Stabilization Policies, Textiles, Apparel & Leather Industry, Pulp & Paper Industry, Food & Beverage Industry, Common Carriers Industry, Construction Industry, General Manufacturing, Labor Markets, Employment and Unemployment

Suggested Citation

Ayyagari, Meghana and Demirguc-Kunt, Asli and Maksimovic, Vojislav, Who are America's Star Firms? (July 13, 2018). World Bank Policy Research Working Paper No. 8534. Available at SSRN: https://ssrn.com/abstract=3238377

Meghana Ayyagari (Contact Author)

George Washington University - School of Business ( email )

Washington, DC 20052
United States

Asli Demirguc-Kunt

World Bank

1818 H Street, NW
Washington, DC 20433
United States

Vojislav Maksimovic

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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