Markups, intangible capital and heterogeneous financial frictions

Altomonte, Carlo, Favoino, Domenico, Morlacco, Monica and Sonno, Tommaso (2021) Markups, intangible capital and heterogeneous financial frictions. CEP Discussion Papers (1740). Centre for Economic Performance, LSE, London, UK.

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Abstract

This paper studies the interaction between financial frictions, intangible investment decisions, and markups at the firm level. In our model, heterogeneous credit constraints distort firms' decisions to invest in cost-reducing technology. The latter interacts with variable demand elasticity to generate endogenous dispersion across firms in markups and pass-through elasticities. We test the model's predictions on a representative sample of French manufacturing firms over the period 2004-2014. We establish causality by exploiting a quasi-natural experiment induced by a policy change that affected firms' liquidity. Our results shed new light on the roots of rising markups and markup heterogeneity in recent years.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://cep.lse.ac.uk/_new/publications/discussion...
Additional Information:	© 2021 The Authors
Divisions:	Centre for Economic Performance
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce
JEL classification:	D - Microeconomics > D2 - Production and Organizations > D24 - Production; Cost; Capital and Total Factor Productivity; Capacity G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited:	08 Mar 2022 15:06
Last Modified:	15 Sep 2023 23:56
URI:	http://eprints.lse.ac.uk/id/eprint/114280

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