Abstract This paper examines the impact of Brexit uncertainty on firm markup. We borrow data from the Amtliche Firmendaten für Deutschland (AFiD) database on German manufacturing firms for the period 2014–18. We measure the markup of German firms reflecting firm profitability. Using the Brexit referendum as a quasi-natural experiment, the findings indicate that early post-referendum Brexit uncertainty reduces firm profitability, as indicated by a 1.3 % decline in overall firm markup, labor input markup by 1.5 %, and intermediate input markup by 1.3 % of treated German firms relative to the control firms. We attribute this decline to the cost pressures, as trade flows decline, which force the firms to operate at sub-optimal levels. Notably, these markup effects are primarily observed by single-product firms due to their limited capacity to reallocate resources, whereas non-core firms exhibit dependence on peripheral products, observing markup loss. We confirm the main results through robustness checks and discuss policy implications.
Adeel Ahmad Dar (Thu,) studied this question.