The Rise of Star Firms: Intangible Capital and Competition

Meghana Ayyagari
Vojislav Maksimovic
November 17, 2022

The large divergence in the returns of top-performing star firms and the rest of the economy is substantially reduced when we account for the mismeasurement of intangible capital. Star firms produce and invest more per dollar of invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as non-stars. While star firms have higher markups, these are predicted early in their life-cycle at a time when they are small.

Overall, correcting for mismeasurement, the evidence points to superior ability of star firms to use tangible and intangible capital.

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