Intangible investments, such as R&D, entail substantial upfront costs, are difficult to repurpose if unsuccessful, and involve considerable uncertainty. These characteristics reshape firms’ cost structures and give rise to winner-takes-all dynamics: a few firms earn large, scalable profits, while many others incur unrecoverable losses. Motivated by these distinct economic properties of intangible investments, we investigate whether their rising prevalence helps explain the increase in aggregate corporate profits. Using firm-level data from 1967 to 2023, we find that, for the median public firm, COGS declined by 11 percentage points, while SG&A expenses rose by 12 points as a share of sales—consistent with a shift toward intangible intensity. This shift led to greater profit dispersion across firms, with average profit margins increasing while median margins declined. We also document that the rise in intangible intensity increased operating leverage, making profits more sensitive to changes in sales, and amplifying profit cyclicality. Finally, we link the rise in operating leverage to both the upward trend in aggregate profits and the declining labor share of output. Our findings suggest that the growing role of intangible investment is central to understanding shifts in corporate profits and income distribution.
| Speaker: | Dr Maria Ogneva Associate Professor, University of Southern California |
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