This paper analyses the effects of risk on the holding of inventories and liquid assets by manufacturing firms. Using a panel data set for Zimbabwe which includes firm-specific measures of contractual risk, we show that contractual risk has a major effect on the holding of stocks of inputs and, to a lesser extent, the constitution of cash reserves. This is consistent with the role of inventories as a hedge against stockout risk. By contrast, we find that firms facing more inter-annual market risk hold less inventories. This suggests that African manufacturers prefer adapting to long-term market fluctuations as they materialise rather than building up inventories. This interpretation is consistent with the finding that high market risk firms also have a low capacity utilisation rate.
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Paper provided by Centre for the Study of African Economies, University of Oxford in its series Working Papers Series with number
99-19.
Length: 34 pages Date of creation: 1999 Date of revision: Handle: RePEc:fth:oxesaf:99-19
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Find related papers by JEL classification: M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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