Liquidity Constraints, Competition, and Markup Cyclicality

This article provides evidence on the relation among financial constraints, competition, and the cyclicality of markups. Based on a long series of industry data from a large number of countries, we find that markups increase in conjunction with the business cycle in environments with higher short-te...

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Bibliographic Details
Published in:Financial management 2016-09, Vol.45 (3), p.769-802
Main Authors: Braun, Matías, Raddatz, Claudio
Format: Article
Language:English
Subjects:
Business cycles
Competition
Competition (Economics)
Ecological competition
Economic competition
Economic fluctuations
Economic models
Financial research
Gross domestic product
Industrial cycles
Industrial growth
Industry
Liquidity
Liquidity (Finance)
Management
Markups
Methods
Pricing
Procyclicality
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Summary:This article provides evidence on the relation among financial constraints, competition, and the cyclicality of markups. Based on a long series of industry data from a large number of countries, we find that markups increase in conjunction with the business cycle in environments with higher short-term financial constraints (liquidity constraints) and more competition. The evidence also suggests that these two elements complement each other: the procyclicality of markups in firms facing both high competition and high liquidity constraints is higher than that explained by each determinant independently.
ISSN:0046-3892
1755-053X
DOI:10.1111/fima.12121