Corporate Inequality: Role of Competition and Institutions

Meghana Ayyagari
Vojislav Maksimovic
April 04, 2024

In this paper, we analyze micro panel data from over 70 countries over 1980-2017 to understand the presence and behavior of star firms, defined as the top 10 percentile of firms in the world in terms of return on invested capital. While star firms are more likely to occur in high-income countries and manufacturing industry, there is an increasing share of star firms from middle-income countries and the services sector over time. Star firms have higher markups and produce and invest more per dollar of invested capital than non-star firms. We find no evidence that star firms are differentially exposed to competitive shocks than non-star firms when we use cuts in import tariffs to identify exogenous intensification of competition at the industry level. Using the end of cartel membership as an additional exogenous shock to competition, we again find no reduction in markups post the break up of the cartel and in fact, a reduction in output and investment compared to non-stars. Our results find little support that star firms are differentially protected from trade shocks or that they restrict output and investment as in traditional monopolies.

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