Inventory and the Shape of the Earth
AbstractHow important are local country conditions to firms' operations performance, as revealed in their inventory levels? Under a “flat world” hypothesis, differences in firms' inventory levels are explained more by differences among industries and firms themselves, rather than differences among country conditions (e.g., institutions, infrastructure). In a “round earth” hypothesis, country factors out-weigh firm and industry factors. Using all COMPUSTAT observations for manufacturing firms in 70 countries, covering the years 1994 through 2004, we find little evidence for the “round earth” hypothesis. In our baseline model, country effects explain at most 12.7% of inventory variance, while firm differences explain 35.5%, and industry differences explain 28.5%. This finding is robust to a number of sensitivity tests. Apart from the empirical contribution, this finding can be a useful stylized fact for further theoretical development into the locus of inventory variance. It also has a practical implication - perhaps inventory practices are much more transportable across countries than we have known before.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4754.
Date of creation: 19 Jul 2007
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Find related papers by JEL classification:
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- M11 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - Production Management
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-16 (All new papers)
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