Big data in finance and the growth of large firms

By Juliane Begenau, Maryam Farboodi, Laura L. Veldkamp. Journal of Monetary Economics, 2018

296 citations recorded by the source corpus.

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.

Subfields: Accounting, Finance

View Paper: https://www.semanticscholar.org/paper/cf7397fe0b4766efb9aa6c9a1e783ce79f29fa99

Citations in the corpus

• Time and the Value of Data (2020, unknown): “Such arguments motivate research on how data influences firm dynamics [20,21] and how it disproportionally benefits large firms [8], which then stimulates debates on the implication of AI and, more precisely, data on competition [17,18,32,34,35,39].”