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Big Data in Finance and the Growth of Large Firms

Author

Listed:
  • Juliane Begenau

    (Stanford University)

  • Laura Veldkamp

    (New York University)

  • Maryam Farboodi

    (Princeton University)

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. 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. Large firms, with more economic activity and a longer firm history offer more data to process. 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.

Suggested Citation

  • Juliane Begenau & Laura Veldkamp & Maryam Farboodi, 2018. "Big Data in Finance and the Growth of Large Firms," 2018 Meeting Papers 155, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:155
    as

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    References listed on IDEAS

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