Financial constraints and firms’ markup: evidence from China

Abstract Using the micro data of Chinese manufacturing firms, this study analyzes impact financial constraints on firms’ markup and their influence mechanism. The findings suggest that significantly reduce markup. result is still valid after a series robustness tests, such as key indicator substitution, analysis endogeneity problems, controlling for other policy changes, dynamic panel model estimation, quantile regression. An mechanism shows that, one hand, inhibit improvement production efficiency its through productivity channel; also market pricing power exert significant negative channel. At same time, heterogeneity exists in among different firm types. This paper not only enriches our understanding relationship between markup, but provides new perspective more comprehensive grasp economic effects constraints.