The heterogeneous shielding effect of markups: cross-country evidence on pricing power and downside risk exposure

Purpose This study aims to examine how firms’ pricing power, captured through markups, shapes their exposure to downside risk in the context of global value chain restructuring and heightened macroeconomic and geopolitical uncertainty. Design/methodology/approach This study uses a panel data set of firms from 31 countries over the period 2002–2022 and assess how markups interact with external shocks to influence downside risk. Sectoral heterogeneity and the moderating role of geopolitical risk (GPR) are explicitly analysed. Findings Results show that firms with higher markups experience significantly lower downside risk, indicating that pricing power acts as an internal risk-hedging mechanism. This buffering effect is weaker in the energy sector, reflecting structural rigidities unique to that industry. Moreover, the authors find that elevated GPR strengthens the protective role of markups, suggesting that geopolitical uncertainty enhances the strategic value of pricing power. Originality/value This study provides novel evidence on the risk-management role of markups, demonstrating their dual function as both a measure of competitive advantage and a financial resilience tool. By highlighting industry heterogeneity and the amplifying effect of geopolitical uncertainty, the study contributes new insights into how firms can adapt financial strategies to navigate increasingly volatile global environments.