Big Data in Finance and the Growth of Large Firms

Juliane Begenau, Maryam Farboodi and Laura Veldkamp

No 24550, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: One of the most important trends in modern macroeconomics is the shift from small firms to large firms. At the same time, financial markets have been transformed by advances in information technology. We explore the hypothesis that the use of big data in financial markets has lowered the cost of capital for large firms, relative to small ones, enabling large firms to grow larger. Large firms, with more economic activity and a longer firm history offer more data to process. As faster processors crunch ever more data – macro announcements, earnings statements, competitors' performance metrics, export demand, etc. – large firms become more valuable targets for this data analysis. Once processed, that data can better forecast firm value, reduce the risk of equity investment, and thus reduce the firm's cost of capital. As big data technology improves, large firms attract a more than proportional share of the data processing, enabling large firms to invest cheaply and grow larger.

JEL-codes: D8 E2 G1 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-bec, nep-big, nep-cfn and nep-mac
Note: AP CF EFG IFM IO ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (73)

Published as Juliane Begenau & Maryam Farboodi & Laura Veldkamp, 2018. "Big Data in Finance and the Growth of Large Firms," Journal of Monetary Economics, .

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