Star firms are really about intangible capital

Once we re-compute the ROIC [return on invested capital] calculations to factor in estimates of intangible capital from the finance literature…we find that both the run-up by top decile of firms and the much higher mean returns in the cognitively skilled industries disappear.  Thus, the differences that we found earlier in firm differentiation between industries are likely attributable, in great part, to not accounting for intangible capital consistently.  Industries that rely heavily on complex cognitive skills are likely to have higher amounts of intellectual and organizational capital, which is not measured by ROIC prepared according to generally accepted accounting principles.

That is from Meghana Ayyagari, Asli Demirgüç-Kunt, and Vojislav Maksimovic.

The authors do not that some of the largest tech firms, such as Amazon, Facebook, and Google, are exceptions, but even for those companies the mark-ups are not especially connected to monopolizing behavior.


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