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The Origins of Top Firms

Author

Listed:
  • Rafael Guntin

    (UNIVERSITY OF ROCHESTER)

  • Federico Kochen

    (BANCO DE ESPAÑA AND CEMFI)

Abstract

What are the origins of top firms? What features characterize their life cycle trajectories on the way to the top? Using longitudinal firm-level data, we document novel facts about the first twenty years of the firms that reach the top 1 percent of the size distribution. Compared to the firms in the bottom 99 percent, top firms are eight times larger at entry and grow six times more during their first two decades. In terms of inputs, they start with high capital investments, yet their capital-output ratio and labor share decline as they age. As a result, their profit share is much more backloaded towards the second decade of their life cycle. We show that a firm dynamics model with ex-ante heterogeneity, non-homothetic input costs, and forward-looking financing can explain these empirical patterns. Our quantitative results showcase the importance of accounting for top and bottom firm dynamics for the aggregate implications of financial frictions, recent macroeconomic trends, and corporate taxation.

Suggested Citation

  • Rafael Guntin & Federico Kochen, 2025. "The Origins of Top Firms," Working Papers 2541, Banco de España.
    • Handle: RePEc:bde:wpaper:2541
    DOI: https://doi.org/10.53479/41385
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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