This paper studies the impact of foreign ownership on the wage skill premium by endogenizing skill biased technological change with intangible skill complementarity in production. Increased intangible investment raises the relative demand for skilled labor, which in turn raises the wage skill premium. Foreign owned firms, who are more intangible intensive, amplify this effect. I provide supporting empirical evidence from Spain, documenting aggregate increases in intangible investment and skilled labor compensation. Foreign owned firms operate at a large scale and I show that a change to foreign ownership leads to a scaling up of production, as well as, higher relative employment of skilled workers. I develop a quantitative firm dynamics model with intangible skill complementarity in production and heterogeneity in ownership. Foreign multinationals endogenously enter through acquisition and their subsidiaries receive a technology transfer prompting them to invest at higher levels. An exogenous decline in the intangible investment price triggers the mechanism and further increases foreign entry. Upon matching the decline to the data, the model accounts for nearly forty percent of the increase in the wage skill premium between 2002 and 2017 where about a quarter is attributed to foreign ownership. Through the lens of the model, intangible investment subsidies exclusively for foreign owned firms can increase aggregate output and total factor productivity, but also have welfare implications.

We study how incorporated firms strategically choose to recognize (or not) acquired intangibles from mergers and acquisitions (M&As) in their business accounts and its implications for the measurement of economic profits and labor share. Our analysis is informed by a business accounting change in the early 2000s that forced the acquirer firms to report the acquired intangibles from M&As.

Before the accounting change, acquirer firms that had the incentive to frontload accounting profits —e.g., through CEO compensation affected by these profits—preferred to record the M&A with an accounting method (pooling) that did not recognize the acquired intangibles. This left acquired intangibles out of both the income statement and the balance sheet, which raises not only accounting profits (as the acquired intangibles are not amortized in the income statement) but also potentially economic profits that use, at face value, only assets recognized in the balance sheet.

Further, by implementing accounting obstacles to pooling, target firms leveraged the acquiror's incentive to frontload profits in order to raise the price of the acquisition, extracting a larger share of the total surplus and, hence, reflecting more accurately the marginal benefit of the acquisition. However, after the accounting change, this leverage ceases to exist, increasing the proportion of the surplus captured by the acquirers as the price paid for the acquisition lowers relative to marginal benefit of the acquisition.

Correcting for the omitted acquired intangibles at the firm level before and after the accounting change, we find measures of economic profits and labor share that are relatively trendless.

We quantitatively assess the impact of mergers and acquisitions (M&A) for the allocation of resources. Existing macroeconomic research often relies on firm characteristics only at the time of an M&A deal and uses selected samples to develop and estimate quantitative models. We construct a representative dataset that covers about 63% of the Spanish firm population over the span of 26 years and provide new insights into the dynamics of transacting firms before and after an M&A deal. At the time of birth, both acquirers and targets are significantly larger than the average firm, particularly in terms of assets, employment, and value added. At the time of the deal, both parties tend to be mature and rank among the largest firms in the economy, with acquirers being slightly larger. We find no evidence that either party is financially constrained. In the years following the M&A, we document TFP increases of up to 2-3% and a scaling up of production. We develop a quantitative general equilibrium firm dynamics model with endogenous entry/exit and an M&A market in which firms (but not all) select into to search. M&A directly affects TFP through synergies which improves allocative efficiency. It also has indirect effects by influencing firms' incentives to enter or exit the economy and their investment decisions. These indirect effects lead to resource misallocation for two reasons: first, less productive firms remain in the economy in hopes of being acquired; second, firms anticipate the possibility of acquiring or being acquired, leading to increased investment compared to a model without M&A. This effect is further intensified when firms actively search. This leads to an overaccumulation of capital if a firm never merges, and most ultimately do not. Considering these positive and negative factors, we quantify the net effect of M&A activity on resource allocation.