Selected Publications: Digital Capital and Superstar Firms

4. Januar 2021, von Pedro Magalhães Batista

Foto: Nitish Meena

Prasanna Tambe, Lorin M. Hitt, Daniel Rock, and Erik Brynjolfsson have a new NBER Working Paper, “Digital Capital and Superstar Firms.” The authors develop a new methodology to evaluate the complementary investments necessary to extract value from acquired general purpose technologies. In this sense, the authors separate the expenses in regular IT from other investments needed to explore the IT, which they call digital capital. Using data collected from LinkedIn, they can observe that digital capital prices vary significantly over time. The prices peaked around the dot-com boom in 2000 and that after the bust, firms kept accumulating digital capital while prices varied minimally. Moreover, the recent technology-related increases in firms’ market value are mostly related to quantity changes than changes in prices. By the end of their panel, 2016, digital capital accounted for at least 25% of firms’ assets.

According to the authors, a small subset of “superstar” firms with market values in the top decile disproportionately accumulates digital capital. Interestingly, the concentration of digital assets is much greater than observed in other assets. The authors also point that “inequality in digital capital among firms is growing as the top firms pull further away from the rest.” They also conclude that “the higher values the financial markets have assigned to firms with large digital investments in recent years reflect greater digital capital quantities, rather than simply higher prices for existing assets.” According to their research, this valuation reflects genuine improvements to the firm’s productivity as digital capital accumulation predicts firm-level productivity about three years in the future.