Presenter: Monica Morlacco (University of Southern California)
We study the importance of financial frictions for markups heterogeneity. Heterogeneous credit constraints distort the decision of firms to invest in a cost-reducing technology (akin, but not limited to, intangible capital). The resulting dispersion in marginal costs interact with variable demand elasticity to generate endogenous dispersion in markups. Financial variables operate both at the extensive margin, by acting as a barrier to entry into investment, and at the intensive margin, by distorting the level of investment of individual firms. We test the model predictions in the context of a quasi-natural experiment in France, using balance-sheet data from 2002 to 2013 for a representative sample of French manufacturing firms. Our results shed light on the sources of markup heterogeneity and misallocation.