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Idea Rents and Firm Growth

Author

Listed:
  • Timo Boppart
  • Peter J. Klenow
  • Reiko Laski
  • Huiyu Li

Abstract

Which firms drive aggregate productivity growth? We document that firms with high price-earnings ratios tend to see increases in their subsequent earnings relative to sales, which we interpret as rents from ideas (innovation). We construct an endogenous growth model with shocks to firm innovation step-sizes and R&D efficiency and calibrate it to match patterns in the data. The model implies that growth would be much lower, even with the same innovative effort, if firms had the same step sizes. The model can be used to infer expected growth contributions of individual firms (such as members of the Magnificent Seven). We find that the share of growth coming from smaller listed firms substantially exceeds their sales share, whereas the largest listed firms account for less than their sales share.

Suggested Citation

  • Timo Boppart & Peter J. Klenow & Reiko Laski & Huiyu Li, 2026. "Idea Rents and Firm Growth," NBER Working Papers 35594, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:35594
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    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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