In this paper, use a dataset of publicly listed firms in the United States from the Compustat database to identify star firms and the industries in which these firms are more likely to appear in. We examine the role of intangible capital, competition (Herfindahl-Hirschman industry concentration index), and market power in influencing star firm status. We use three measures of market power - a firm-level measure of operating markups, firm-level market share, and a raw measure of firm size.<sup>4</sup> Finally, we examine the persistence of the star firms’ performance and whether they differ in their investment and output per unit of capital compared to other firms in the economy.

Following Furman and Orszag [2015], we define star firms as firms in the top 10% of Return on Invested Capital (ROIC) in the US in a particular year.<sup>5</sup> Using conventional ROIC measures, in Figure 1, we find that there has indeed been a run-up in the ROIC of the top decile of large, non-financial sector, publicly-listed U.S. firms.<sup>6</sup> Over the period 1965-2015, the ratio of the 90<sup>_th_</sup> percentile ROIC firm to the median ROIC firm has increased by over 69%. Importantly, we find that the star firms whose returns are diverging from the rest of the firms are in industries that require high cognitive skills and that in these industries average returns are higher. In industries where the tasks involve routine manual skills and which score low on non-routine cognitive and complex problem solving skills, we see lower returns and don’t see the star firms pulling away from the rest.

However, conventional return metrics do not capitalize research and development, brand capital, or other forms of organizational capital. The consequences of not measuring intangible capital are far-reaching because they affect measures of firms’ earnings, identification of variable costs, capital investment and estimates of pricing power, outcomes which are subject to controversy. While De Loecker and Eeckhout [2017] show that there is a dramatic rise in firm market power in the

> 4Our implementation of operating markups, which follow the work of De Loecker and Eeckhout [2017] and Traina [2018] is discussed below.

> 5ROIC is an important profitability metric in corporate finance measuring how efficiently a company can allocate its capital to profitable investment and has been widely used in the literature (e.g. Ben-David, Graham, and Harvey [2013]) and by practitioners (e.g. Koller [1994], Koller et al. [2017]). For instance, David Benoit writing for the Wall Street Journal argued that General Motors placated activist investors with the help of higher return on invested capital (ROIC). See _The Hottest Metric in Finance: ROIC_ , Wall Street Journal (2016).

> 6We restrict our sample to large firms (defined as firms with assets more than $200 Million in 2009 dollars, adjusted for inflation) to replicate the equivalent figure in the previous studies. However, the evidence in Council of Economic Advisors [2016], Furman and Orszag [2015], and Koller et al. [2017] is based on a proprietary dataset of US firms from McKinsey & Co. whereas Figure 1 is based on publicly available Compustat data. If we were to use the full sample of Compustat firms without restricting to large firms, we get much higher increases in ROIC for the top decile of

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