Markups and Financial Shocks

Abstract This paper analyses the impact of financial frictions on markup adjustments at firm level. We use a rich panel data set that matches information banking relationships with firm-level data. By relying insights from recent contributions in literature, we obtain exogenous credit supply shifters and markups are both specific time varying. uncover new findings this In particular, firms more exposed to liquidity risks tend raise response negative bank-loan shocks, while less generally reduce them. Further empirical suggest our mostly consistent models featuring sticky customer base, where financially constrained have an incentive order sustain without losing too many customers. Our results important economic implications regarding cyclicality aggregate markup.