This paper studies the implications of data technology for firm dynamics and asset prices.

We develop a heterogeneous firm model in which firms optimally hire data scientists to learn about unobserved consumer preferences. Data enhances firms’ demand forecasting accuracy, enabling them to charge higher markups. Firms that are constrained in expanding production capacity have stronger incentives to hire data scientists. This results in countercyclical data scientist hiring, which amplifies firms’ exposure to aggregate risk via the operating leverage channel. Using a novel dataset that tracks firms’ employment of data scientists, we document three key empirical findings that support the model’s main mechanisms: firms with a higher share of data scientists exhibit larger markups, higher information quality, and higher stock returns.

When financial intermediaries invest on behalf of clients, they exert effort that clients cannot contract on and compete when trading assets. I develop a model in which the resulting moral hazard and degree of competition interact through market clearing, so that the incentive contracts clients offer intermediaries depend on how many intermediaries compete. I show that greater competition can tighten incentive constraints and reduce welfare. Pricing patterns in proprietary Canadian equity data are consistent with both frictions, and, read through the lens of the model, suggest a welfare loss from greater competition. This calls for coordinating competition and conduct regulation.

We develop a novel methodology to estimate firm-specific markup premiums using highly granular product-level data that controls for common shocks, isolating the premium as a residual. We validate this measure by comparing it to existing accounting-based estimates and by showing that it exhibits expected correlations with firm size and market share. Unlike traditional approaches, our method can be applied to both public and private firms, enabling an analysis of how financial structure and managerial incentives influence pricing decisions. We find that financial structure matters: public firms systematically increase markups following an IPO. Moreover, during the 2021--2022 inflation surge, publicly listed firms expanded their margins by capitalizing on inflationary pressures---especially among firms with high retail ownership, large early-pandemic stock declines, and strong equity-based pay incentives.