Markups, intangible capital and heterogeneous financial frictions

Carlo Altomonte, Domenico Favoino, Monica Morlacco and Tommaso Sonno

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 sontraints; intangibles; productivity; technological change (search for similar items in EconPapers)
JEL-codes: D24 G32 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2021-01-08
New Economics Papers: this item is included in nep-cfn, nep-eff and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://eprints.lse.ac.uk/114280/ Open access version. (application/pdf)

Related works:
Working Paper: Markups, intangible capital and heterogeneous financial frictions (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:114280

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