Firms' stock market flotation: Effects on inventory policy
In this article, we argue that firms that are floated on the stock market are subject to close scrutiny by financial markets, which hinder them from implementing the type of empire-building overinvestment policies that may generate inventory accumulation (the signaling role of inventories). Also, listed firms have more resource availability to finance their investment projects and do not need to use inventories as a tool for dealing with their liquidity requirements (the liquidity role). Taking into account both these roles--signaling and liquidity--our main hypothesis is that after a firm is listed on the stock market, there is a decline in its inventory level as well as in its inventory variability, especially in those firms with larger liquidity needs (i.e., small firms and/or firms with financial difficulties). We further argue that the reductions in inventories will be larger for equity issues than for debt issues. Using a sample of US manufacturing firms for the period 1994-2004, we find evidence that conforms to our theoretical predictions, suggesting a natural stabilizing mechanism that may smooth the economic cycle.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Anil K. Kashyap & Owen A. Lamont & Jeremy C. Stein, 1993.
"Credit conditions and the cyclical behavior of inventories,"
Working Paper Series, Macroeconomic Issues
93-7, Federal Reserve Bank of Chicago.
- Kashyap, Anil K & Lamont, Owen A & Stein, Jeremy C, 1994. "Credit Conditions and the Cyclical Behavior of Inventories," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 565-92, August.
- Josep A. Tribó, 2004.
"Ownership Structure And Inventory Policy,"
Business Economics Working Papers
wb043211, Universidad Carlos III, Departamento de Economía de la Empresa.
- Armo Gomes & Walter Novaes, 2001. "Sharing of Control as a Corporate Governance Mechanism," Penn CARESS Working Papers 3756d78204ca49d92aaf1c17c, Penn Economics Department.
- Mark Gertler & Simon Gilchrist, 1993.
"The role of credit market imperfections in the monetary transmission mechanism: arguments and evidence,"
Finance and Economics Discussion Series
93-5, Board of Governors of the Federal Reserve System (U.S.).
- Gertler, Mark & Gilchrist, Simon, 1993. " The Role of Credit Market Imperfections in the Monetary Transmission Mechanism: Arguments and Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(1), pages 43-64.
- Tribo, Josep A., 2001. "Inventories, financial structure and market structure," International Journal of Production Economics, Elsevier, vol. 71(1-3), pages 79-89, May.
- Krautter, Jochen, 1999. "Inventory theory: New perspectives for corporate management," International Journal of Production Economics, Elsevier, vol. 59(1-3), pages 129-134, March.
- Calomiris, Charles W. & Himmelberg, Charles P. & Wachtel, Paul, 1995.
"Commercial paper, corporate finance, and the business cycle: a microeconomic perspective,"
Carnegie-Rochester Conference Series on Public Policy,
Elsevier, vol. 42(1), pages 203-250, June.
- Charles W. Calomiris & Charles P. Himmelberg & Paul Wachtel, 1994. "Commercial Paper, Corporate Finance, and the Business Cycle: A Microeconomic Perspective," NBER Working Papers 4848, National Bureau of Economic Research, Inc.
- Charles W. Calomiris & Charles P. Himmelberg & Paul Wachtel, 1994. "Commercial Paper, Corporate Finance and the Business Cycle: A Microeconomic Perspective," Working Papers 94-17, New York University, Leonard N. Stern School of Business, Department of Economics.
- Lai, Richard, 2006.
"Inventory and the Stock Market,"
4760, University Library of Munich, Germany.
- Jay R. Ritter & Ivo Welch, 2002.
"A Review of IPO Activity, Pricing, and Allocations,"
Journal of Finance,
American Finance Association, vol. 57(4), pages 1795-1828, 08.
- Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," NBER Working Papers 8805, National Bureau of Economic Research, Inc.
- Jay Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing and Allocations," Yale School of Management Working Papers ysm258, Yale School of Management, revised 01 Apr 2002.
- Hong Chen & Murray Z. Frank & Owen Q. Wu, 2005. "What Actually Happened to the Inventories of American Companies Between 1981 and 2000?," Management Science, INFORMS, vol. 51(7), pages 1015-1031, July.
- Margaret M. McConnell & Gabriel Perez Quiros, 1997.
"Output fluctuations in the United States: what has changed since the early 1980s?,"
9735, Federal Reserve Bank of New York.
- Gabriel Perez-Quiros & Margaret M. McConnell, 2000. "Output Fluctuations in the United States: What Has Changed since the Early 1980's?," American Economic Review, American Economic Association, vol. 90(5), pages 1464-1476, December.
- Margaret McConnell & Gabriel Perez Quiros, 2000. "Output fluctuations in the United States: what has changed since the early 1980s?," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Margaret M. McConnell & Gabriel Perez Quiros, 1998. "Output fluctuations in the United States: what has changed since the early 1980s?," Staff Reports 41, Federal Reserve Bank of New York.
- Rotemberg, Julio J & Saloner, Garth, 1989. "The Cyclical Behavior of Strategic Inventories," The Quarterly Journal of Economics, MIT Press, vol. 104(1), pages 73-97, February.
- Arellano, Manuel & Bond, Stephen, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Wiley Blackwell, vol. 58(2), pages 277-97, April.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
- Guariglia, Alessandra, 2000. " Inventory Investment and Capital Market Imperfections: A Generalization of the Linear Quadratic Inventory Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 223-42, May.
- Richard Kum-yew Lai, 2005.
- Alan S. Blinder & Louis J. Maccini, 1991. "Taking Stock: A Critical Assessment of Recent Research on Inventories," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 73-96, Winter.
- Robert E. Carpenter & Steven M. Fazzari & Bruce C. Petersen, 1994. "Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle," Macroeconomics 9401001, EconWPA.
- Hendel, Igal, 1996. "Competition under Financial Distress," Journal of Industrial Economics, Wiley Blackwell, vol. 44(3), pages 309-24, September.
When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:118:y:2009:i:1:p:10-18. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.