CAPITAL MARKETS IMPERFECTIONS AND MARKUPS CYCLICALITY: AN EMPIRICAL ANALYSIS ON FIRM LEVEL DATA IN ITALY

Anna Bottasso

CERIS Working Paper from CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY

Abstract: In this paper the cyclical behaviour of markups in presence of imperfect capital markets has been analysed from an empirical point of view. A markup equation has been estimated including among regressors a leverage variable. This approach is based on the hypothesis that more leveraged firms have a lower level of internal net worth and are more likely to be affected by problems induced by capital market imperfections. The empirical analysis has been conducted on a panel of 1168 Italian manufacturing firms observed over the period 1977-1993. Overall results suggest the existence of financial constraints which induce firms to reduce markups; since this incentive is higher during recessions, it seems that capital market imperfections have a procyclical impact on markups.

JEL-codes: D21 D43 D92 E30 (search for similar items in EconPapers)
Pages: 24 pages Keywords : Markup, Financing Constraints, Business Cycle.
Date: 1997-12
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Persistent link: https://EconPapers.repec.org/RePEc:csc:cerisp:199720

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