Rising Firm-Level Inequality in Europe: The Role of Technology and Innovation

Rising Firm-Level Inequality in Europe: The Role of Technology and Innovation | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Rising Firm-Level Inequality in Europe: The Role of Technology and Innovation Sid Ahmed ZENAGUI This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-9364791/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This paper investigates the impact of artificial intelligence (AI) adoption on firm performance in Europe, with a particular focus on distributional effects across the performance spectrum. Using a panel dataset of firms from 2000–2025 and employing panel quantile regression techniques with firm and time fixed effects, the study examines how AI influences productivity and performance heterogeneity. The results show that AI adoption has a positive and statistically significant effect on firm performance, but its impact is highly uneven across the distribution. Specifically, the magnitude of the AI effect increases monotonically from lower to upper quantiles, indicating that high-performing firms benefit disproportionately more from AI technologies than low-performing firms. This pattern remains robust across alternative performance measures, AI proxies, subsample analyses, and model specifications, including controls for innovation and interaction effects. Further evidence shows that innovation significantly amplifies the productivity gains from AI, particularly among top-performing firms, thereby reinforcing performance divergence. Cross-country analysis reveals heterogeneous but consistent patterns across European economies, with stronger effects in more advanced innovation systems. Overall, the findings highlight that AI is a key driver of technology-induced firm-level inequality and structural heterogeneity within European industries. JEL Classification : D22; D24; O33; O47; L25; C21 Artificial Intelligence Firm Performance Productivity Quantile Regression Innovation Inequality Digital Transformation Europe Firm Heterogeneity Full Text Additional Declarations No competing interests reported. Supplementary Files RisingFirmData.xlsx Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-9364791","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":620302541,"identity":"b36842a4-f6d5-4d9f-b4f5-4cdbc4e786c3","order_by":0,"name":"Sid Ahmed ZENAGUI","email":"data:image/png;base64,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","orcid":"","institution":"University of Ain Temouchent","correspondingAuthor":true,"prefix":"","firstName":"Sid","middleName":"Ahmed","lastName":"ZENAGUI","suffix":""}],"badges":[],"createdAt":"2026-04-09 07:38:24","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-9364791/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-9364791/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":106994386,"identity":"1d7b69d7-a2dc-4164-98bd-c3e2288bb082","added_by":"auto","created_at":"2026-04-15 15:08:09","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":1120109,"visible":true,"origin":"","legend":"","description":"","filename":"RisingFirm.pdf","url":"https://assets-eu.researchsquare.com/files/rs-9364791/v1_covered_ce70d65e-ea33-49c6-af2b-12d4db71c76b.pdf"},{"id":106608765,"identity":"7f40fdb4-51b6-4b8c-b319-064950dec45e","added_by":"auto","created_at":"2026-04-10 11:50:12","extension":"xlsx","order_by":1,"title":"","display":"","copyAsset":false,"role":"supplement","size":466182,"visible":true,"origin":"","legend":"","description":"","filename":"RisingFirmData.xlsx","url":"https://assets-eu.researchsquare.com/files/rs-9364791/v1/1af3015769f368d1f8ad8647.xlsx"}],"financialInterests":"No competing interests reported.","formattedTitle":"Rising Firm-Level Inequality in Europe: The Role of Technology and Innovation","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":true,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Artificial Intelligence, Firm Performance, Productivity, Quantile Regression, Innovation, Inequality, Digital Transformation, Europe, Firm Heterogeneity","lastPublishedDoi":"10.21203/rs.3.rs-9364791/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-9364791/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis paper investigates the impact of artificial intelligence (AI) adoption on firm performance in Europe, with a particular focus on distributional effects across the performance spectrum. Using a panel dataset of firms from 2000–2025 and employing panel quantile regression techniques with firm and time fixed effects, the study examines how AI influences productivity and performance heterogeneity. The results show that AI adoption has a positive and statistically significant effect on firm performance, but its impact is highly uneven across the distribution. Specifically, the magnitude of the AI effect increases monotonically from lower to upper quantiles, indicating that high-performing firms benefit disproportionately more from AI technologies than low-performing firms. This pattern remains robust across alternative performance measures, AI proxies, subsample analyses, and model specifications, including controls for innovation and interaction effects. Further evidence shows that innovation significantly amplifies the productivity gains from AI, particularly among top-performing firms, thereby reinforcing performance divergence. Cross-country analysis reveals heterogeneous but consistent patterns across European economies, with stronger effects in more advanced innovation systems. 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