Table A1: **Variable**

|**_Variables_**|**_Defnition_**|
|---|---|
|Invested Capital|Invested Capital = PPENT + ACT + INTAN - LCT - GDWL - max(CHE-0.02 x<br>SALE, 0)<br>where PPENT is Net Property, Plant, and Equipment, ACT is Current Assets, IN-<br>TAN is Total Intangible Assets (excluding Goodwill), LCT is Current Liabilities,<br>GDWL is Goodwill that represents the excess cost over equity of an acquired com-<br>pany, CHE is Cash and Short-term Investments, and SALE is net sales/turnover.<br>This defnition does not include the Peters and Taylor (2017) correction for intangi-<br>ble capital|
|ROIC|(EBITt+AMt)/Invested Capitalt-1 where EBIT is Earnings before Interest and Taxes<br>and AM is Amortization of Intangibles|
|ROIC Star|Dummy variable that takes the value 1 if the frms ROIC is above the 90th percentile<br>of ROIC across all frms in the US economy in a particular year and 0 otherwise.|
|SGA|SGA= XSGA-XRD-RDIP where XRD is Research and Development Expense, RDIP<br>is in-process R&D expense, XSGA is Selling, General, and Administrative Expense|
|Invested Capital<sup>TOT</sup>|Invested Capital<sup>TOT </sup>= PPENT + ACT + ICAP - LCT - GDWL - max(CHE-0.02 x<br>SALE, 0)<br>where PPENT is Net Property, Plant, and Equipment, ACT is Current Assets. ICAP<br>is defned as the sum of externally purchased intangible capital (INTAN) and inter-<br>nally purchased intangible capital, both measured at replacement cost. Internally<br>purchased intangible capital is in turn measured as the sum of knowledge capi-<br>tal (K<br>~~i~~nt<br>~~k~~now) and organization capital (K<br>~~i~~nt<br>~~o~~rg). LCT is Current Liabilities,<br>GDWL is Goodwill that represents the excess cost over equity of an acquired com-<br>pany, CHE is Cash and Short-term Investments, and SALE is net sales/turnover.|
|ROIC<sup>TOT</sup>|ROIC<sup>TOT </sup>= (EBIT + AM + XRD + 0.3 x SGA - _δRD_ x K<br>~~i~~nt<br>~~k~~now - _δSGA_ x<br>K<br>~~i~~nt<br>~~o~~rg)/Lagged value of Invested Capital<sup>TOT</sup><br>where EBIT is Earnings before Interest and Taxes, AM is Amortization of Intangibles,<br>XRD is Research and Development Expense, _δRD_ is the depreciation rate associated<br>with knowledge capital and is set to 15% following Peters and Taylor (2017) and_δSGA_<br>is the depreciation rate associated with organization capital and is set to 20% following<br>Falato, Kadyrzhanova, and Sim (2013) and Peters and Taylor (2017). K<br>~~i~~nt<br>~~k~~now and<br>K<br>~~i~~nt<br>~~o~~rg are the frms intangible capital replacement cost and organization capital<br>replacement cost respectively from Peters and Taylor (2017)|
|ROIC<sup>TOT </sup>Star|Dummy variable that takes the value 1 if the frms ROICTOT is above the 90th<br>percentile of ROIC<sup>TOT </sup>across all frms in the US economy in a particular year and 0<br>otherwise|
|Markups|Markups following the estimation in De Loecker and Eeckhout (2017) using Operating<br>Expenses (OPEX) as a variable input|
|Markups<sup>TOT</sup>|Markups following the estimation in De Loecker and Eeckhout (2017) using Operating<br>Expenses* (OPEX*) as a variable input where_OPEX_<sup>_∗_</sup>=_OPEX −XRD−RDIP −_<br>0_._3_×XSGA_where OPEX is Total Operating Expenses, XRD is Research and Devel-<br>opment Expense, RDIP is in-process R&D expense, XSGA is Selling, General, and<br>Administrative Expense|
|COGS Markups|Markups following the estimation in De Loecker and Eeckhout (2017) using Cost of<br>Goods Sold (COGS) as a variable input|
|Log(Assets)|Logarithm of total assets|
|Log(Age)|Log(1+Firm Age) where Firm Age is the number of years the frm has appeared in<br>Compustat|

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