Markups, Lack of Financing and Business Structures

Speaker: Dr Andrés Bellofatto

Affiliation: The University of Queensland

Location: Level 6 Boardroom (629), Colin Clark Building (#39), St Lucia Campus

Zoom: https://uqz.zoom.us/j/82603079317

Abstract: This paper studies the link between borrowing constraints and firm-level markups using administrative data of the near universe of  Australian firms. We concentrate on  privately-held firms (approximately 97% of the sample), and construct measures of borrowing-constraint tightness based on survey questions and tax return data. Within a subsample, we use managers' responses to define a binary indicator of whether a firm is financially constrained. Within the full sample, we build intensive measures of asset-based as well as earnings-based borrowing-constraint tightness. We find that tighter borrowing constraints lead to significant increases in firm-level markups for young and small firms, but this effect decreases with firms' age and size. We also build a theoretical model showing that the empirical link between borrowing constraints and markups can be rationalized through working capital requirements.