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Inventory Investment, Global Engagement, and Financial Constraints in the UK: Evidence from Micro Data

  • Simona Mateut
  • Alessandra Guariglia

We use a panel of 9381 UK firms to study the links between firms’ global engagement status and their financial health. We estimate inventory investment equations augmented with a financial composition variable, and interpret the sensitivity of inventory investment to the latter as a measure of the strength of the financial constraints faced by firms. We find that smaller, younger, and more risky firms; and firms that do not export and are not foreign owned exhibit higher sensitivities. Moreover, global engagement substantially reduces the sensitivities displayed by the former categories of firms: this suggests that it shields firms from financial constraints.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 09/09.

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