The Origins of Top Firms

Rafael Guntin and Federico Kochen
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Rafael Guntin: UNIVERSITY OF ROCHESTER
Federico Kochen: BANCO DE ESPAÑA AND CEMFI

No 2541, Working Papers from Banco de España

Abstract: What are the origins of top firms? What features characterize their life cycle trajectories on the way to the top? Using longitudinal firm-level data, we document novel facts about the first twenty years of the firms that reach the top 1 percent of the size distribution. Compared to the firms in the bottom 99 percent, top firms are eight times larger at entry and grow six times more during their first two decades. In terms of inputs, they start with high capital investments, yet their capital-output ratio and labor share decline as they age. As a result, their profit share is much more backloaded towards the second decade of their life cycle. We show that a firm dynamics model with ex-ante heterogeneity, non-homothetic input costs, and forward-looking financing can explain these empirical patterns. Our quantitative results showcase the importance of accounting for top and bottom firm dynamics for the aggregate implications of financial frictions, recent macroeconomic trends, and corporate taxation.

Keywords: top 1 percent; firm size distribution; firm dynamics; financial frictions (search for similar items in EconPapers)
JEL-codes: E44 G30 O47 (search for similar items in EconPapers)
Pages: 92 pages
Date: 2025-11
New Economics Papers: this item is included in nep-ent, nep-sbm and nep-tid
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2541

DOI: 10.53479/41385

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