The Rise of Star Firms: Intangible Capital and Competition

Abstract

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 in invested capital, have more valuable innovations as measured by the market value of patents, and are as exposed to competitive shocks as nonstars. Star firms have higher markups that are predicted early in their life cycle at a time when they are small. Overall, after we correct for the mismeasurement of intangibles, the evidence points to the superior ability of star firms.