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Capital Markets Imperfections And Markups Cyclicality: An Empirical Analysis On Firm Level Data In Italy

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In this paper the cyclical behaviour of markups in presence of imperfect capital markets has been analysed from an empirical point of view. A markup equation has been estimated including among regressors a leverage variable. This approach is based on the hypothesis that more leveraged firms have a lower level of internal net worth and are more likely to be affected by problems induced by capital market imperfections. The empirical analysis has been conducted on a panel of 1168 Italian manufacturing firms observed over the period 1977-1993. Overall results suggest the existence of financial constraints which induce firms to reduce markups; since this incentive is higher during recessions, it seems that capital market imperfections have a procyclical impact on markups.

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File URL: http://www.ceris.cnr.it/ceris/workingpaper/1997/wp20_97BOTTASSO.pdf
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Paper provided by Institute for Economic Research on Firms and Growth - Moncalieri (TO) in its series CERIS Working Paper with number 199720.

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Length: 24 pages Keywords : Markup, Financing Constraints, Business Cycle.
Date of creation: Dec 1997
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Handle: RePEc:csc:cerisp:199720

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  1. Alessandro Sembenelli & Laura Rondi & Fabio Schiantarelli & Brian Sack, 1993. "Firms' Financial And Real Responses To Business Cycle Shocks And Monetary Tightening: Evidence For Large And Small Italian Companies," CERIS Working Paper 199305, Institute for Economic Research on Firms and Growth - Moncalieri (TO).
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