Finance Constraints and Inventory Investment: Empirical Tests with Panel Data
AbstractThe 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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Length: 29 pages
Date of creation: 22 Nov 2004
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information asymmetries; finance constraints; liquidity constraints; inventories; inventory investment; Povel and Raith model; negative cash flow;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-12-12 (All new papers)
- NEP-FIN-2004-12-12 (Finance)
- NEP-FIN-2004-12-15 (Finance)
- NEP-MAC-2004-12-12 (Macroeconomics)
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