The Rise of Star Firms: Intangible Capital and Competition

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 of their market power. We show that the divergence is largely explained by the mismeasurement of intangible capital. While star status is associated with greater market power, star firms produce and invest more per dollar of invested capital, and are not differentially affected by exogenous competitive shocks than other firms. Concerns that star firms are welfare reducing welfare are not supported by our data.

Keywords: star firms, intangible capital, organizational capital, industry concentration, ROIC, capital expenditure

JEL Classification: G30, G31, G32, L22, L23, L25