Accounting Seminar
2025-11
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Topic: Intangible Investments and Increasing Aggregate Profits
Speaker: Suresh Nallareddy, University of Washington
Time: Wednesday, September 10, 10:00-11:30 a.m. Beijing time
Location: Classroom 217, Guanghua Building 2
Abstract
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.
Introduction
Suresh Nallareddy is the Durwood L. Alkire Endowed Associate Professor of Accounting. His academic expertise lies in the field of financial accounting. He earned his PhD from the University of Southern California in 2012. Professor Nallareddy was previously a faculty member at Columbia Business School from 2012 to 2016 and at Duke University's Fuqua School of Business from 2016 to 2023.
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