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Who are America's star firms?

Author

Listed:
  • Ayyagari,Meghana
  • Demirguc-Kunt,Asli
  • Maksimovic,Vojislav

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.

Suggested Citation

  • Ayyagari,Meghana & Demirguc-Kunt,Asli & Maksimovic,Vojislav, 2018. "Who are America's star firms?," Policy Research Working Paper Series 8534, The World Bank.
  • Handle: RePEc:wbk:wbrwps:8534
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    Cited by:

    1. Ian Goldin & Pantelis Koutroumpis & François Lafond & Julian Winkler, 2024. "Why Is Productivity Slowing Down?," Journal of Economic Literature, American Economic Association, vol. 62(1), pages 196-268, March.
    2. Alexeeva-Alexeev, Inna & Mazas-Perez-Oleaga, Cristina, 2024. "Do ICT firms manage R&D differently? Firm-level and macroeconomic effects on corporate R&D investment: Empirical evidence from a multi-countries context," Technological Forecasting and Social Change, Elsevier, vol. 198(C).

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