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Markups, intangible capital and heterogeneous financial frictions

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  • Carlo Altomonte
  • Domenico Favoino
  • Monica Morlacco
  • Tommaso Sonno

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.

Suggested Citation

  • Carlo Altomonte & Domenico Favoino & Monica Morlacco & Tommaso Sonno, 2021. "Markups, intangible capital and heterogeneous financial frictions," CEP Discussion Papers dp1740, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1740
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    Cited by:

    1. Zhiyuan Chen & Minjie Deng & Min Fang, 2022. "Financing Innovation with Innovation," Working Papers 002004, University of Florida, Department of Economics.
    2. Ugur, Mehmet, 2024. "Innovation, market power and the labour share: Evidence from OECD industries," Technological Forecasting and Social Change, Elsevier, vol. 203(C).
    3. Carlo Altomonte & Peter Bauer & Alberto Maria Gilardi & Chiara Soriolo, 2022. "Intangible Assets, Industry Performance and Finance During Crises," BAFFI CAREFIN Working Papers 22173, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    4. Maarten de Ridder, 2022. "Market power and innovation in the intangible economy," POID Working Papers 064, Centre for Economic Performance, LSE.
    5. Christian Abele & Agnès Bénassy-Quéré & Lionel Fontagné, 2020. "One Size Does Not Fit All: TFP in the Aftermath of Financial Crises in Three European Countries," PSE Working Papers halshs-02883685, HAL.
    6. De Ridder, Maarten, 2024. "Market power and innovation in the intangible economy," LSE Research Online Documents on Economics 120285, London School of Economics and Political Science, LSE Library.

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    More about this item

    Keywords

    markups; financial constraints; intangibles; productivity; technological change;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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