Invisible assets, visible power: How does intangible capital affect firm markups?

This study theoretically and empirically examines the impact of intangible capital on firm markups. Following Altomonte et al. (2021), it develops a framework in which intangible capital affects markups through two channels: a positive “production efficiency” effect and a negative “market-based pricing” effect. Using panel data from the Annual Survey of Industrial Firms covering Chinese manufacturing firms over 1999–2007, the study empirically tests these mechanisms. The results show that intangible capital significantly increases firm markups, and the efficiency-enhancing effect dominates the pricing-pressure effect. These findings remain robust to alternative specifications and endogeneity corrections. Further analysis reveals substantial heterogeneity across firm types. Overall, the study provides micro-level evidence from a large developing economy on how intangible capital shapes firm markups, offering new insights into the economic effects of intangible investment.