Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

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Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

Author Info

Rose Cunningham (Bank of Canada)

Additional information is available for the following registered author(s):

Rose M. Cunningham

Abstract

The author empirically tests two aspects of the interaction between financial variables and inventory investment: negative cash flow and finance constraints due to asymmetric information. This is one of the first studies of inventory investment and finance constraints using Canadian data. A sample of Canadian manufacturing firms over the period 1992Q2-1999Q4 is split into subsamples based on age, bond rating, and size to reflect expected differences in degrees of asymmetric information problems. The findings are consistent with a model in which inventory investment is a U-shaped function of cash flow. Higher degrees of information asymmetry do no appear to generate differences in the sensitivity of inventory investment to cash flow during the sample period.

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Paper provided by EconWPA in its series Macroeconomics with number 0411015.

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Length: 29 pages
Date of creation: 22 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0411015

Note: Type of Document - pdf; pages: 29
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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies

This paper has been announced in the following NEP Reports:

NEP-ALL-2004-12-12 (All new papers)
NEP-FIN-2004-12-15 (Finance)
NEP-FIN-2004-12-12 (Finance)
NEP-MAC-2004-12-12 (Macroeconomics)

References listed on IDEAS
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