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The Value of Software

Author

Listed:
  • Roberto Gómez-Cram
  • Alastair Lawrence

Abstract

Software is one of the most important assets that needs to be priced in the digital economy. It has emerged as a disruptive technology, with companies primarily valued for their software offerings growing from 2 percent to 13 percent of market share between 1996 and 2023. We document persistent anomalies in growth forecasts and stock returns for software companies, indicating significant deviations from rational expectations over multiple decades. Our findings are consistent with Bayesian investors gradually learning about software's growing importance, highlighting how markets can be very slow to discern fundamental shifts from transient shocks in noisy data.

Suggested Citation

  • Roberto Gómez-Cram & Alastair Lawrence, 2025. "The Value of Software," American Economic Review, American Economic Association, vol. 115(10), pages 3514-3558, October.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:10:p:3514-58
    DOI: 10.1257/aer.20230463
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software

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