Measures of firm performance and concentration: Stylized facts and a dilemma of data reproduction

Abstract

Economists and policymakers have used the increase in the concentration of return on invested capital (ROIC) in publicly traded US firms over the last decades as evidence for the decline of competitiveness in the broader economy. Principle support for this claim is a graph presented by the Council of Economic Advisors (CEA, 2016) that reproduces data from the McKinsey and Company’s book on Corporate Valuation. We demonstrate that the key findings associated with the evolution of the ROIC cannot be broadly reproduced using Compustat data and established accounting measures and calculations. Further, we find the recommended data filtering strategies can result in discarding more than 75% of the available data. We show that using the full information dataset can lead to significant changes in economic conclusions. We advocate for transparency in calculations and rationalization of data pre-processing.