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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"Relational Contracts and the Nature of Market Interactions,"
Econometric Society, vol. 72(3), pages 747-780, 05.
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"Inventories in a Competitive Environment,"
92-19, University of Iowa, Department of Economics.
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