Are Inventories a Buffer Against Weak Legal Systems?
Weak legal enforcement of contracts leads to inefficient breach and an overall increase in breaches for firms and individuals. We suggest that firms use inventory holdings as a means to counteract weak contract enforcement. We test the hypothesis that firms operating in weak legal environments have a higher ratio of inventories to net sales than firms operating in strong legal environments. Empirical evidence in support of the hypothesis using data from over three hundred comparable firms from fourteen product groups across thirty-nine countries is presented. Copyright 2007 Blackwell Publishing Ltd..
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Volume (Year): 60 (2007)
Issue (Month): 3 (08)
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References listed on IDEAS
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- Kahn, James A, 1987. "Inventories and the Volatility of Production," American Economic Review, American Economic Association, vol. 77(4), pages 667-679, September. Full references (including those not matched with items on IDEAS)
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