The Rise of Star Firms: Intangible Capital and Competition

82 Pages Posted: 26 Apr 2019 Last revised: 13 Jan 2020

See all articles by Meghana Ayyagari

Meghana Ayyagari

University of Maryland - Robert H. Smith School of Business; George Washington University - School of Business

Asli Demirgüç-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: December 20, 2019

Abstract

There is a divergence in the returns of top-performing (star) firms and the rest of the economy, especially in industries that rely on a skilled labor force, raising concerns about their market power. We show that the divergence is explained by the mis-measurement of intangible capital. While star status is associated with greater market power, this association is decreasing over time and especially in industries with high intangible capital investment. Moreover, star firms have higher output and investment per dollar of invested capital at every level of pricing power and are not differentially affected by exogenous competitive shocks than other firms. Our findings suggest that concerns about star firms using their market power in inefficient and welfare reducing ways may be overstated. 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

Suggested Citation

Ayyagari, Meghana and Ayyagari, Meghana and Demirgüç-Kunt, Asli and Maksimovic, Vojislav, The Rise of Star Firms: Intangible Capital and Competition (December 20, 2019). Available at SSRN: https://ssrn.com/abstract=3378712 or http://dx.doi.org/10.2139/ssrn.3230154

Meghana Ayyagari

George Washington University - School of Business ( email )

Washington, DC 20052
United States

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

College Park, MD 20742-1815
United States

Asli Demirgüç-Kunt

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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