Markups, intangible capital and heterogeneous financial frictions

Carlo Altomonte, Domenico Favoino, Monica Morlacco and Tommaso Sonno

CEP Discussion Papers from Centre for Economic Performance, LSE

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.

Keywords: markups; financial constraints; intangibles; productivity; technological change (search for similar items in EconPapers)
JEL-codes: D22 D24 G32 (search for similar items in EconPapers)
Date: 2021-01-08
New Economics Papers: this item is included in nep-cfn
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Citations: View citations in EconPapers (11)

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Working Paper: Markups, intangible capital and heterogeneous financial frictions (2021)
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