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Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

Author

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  • Rose Cunningham

    (Bank of Canada)

Abstract

The 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.

Suggested Citation

  • Rose Cunningham, 2004. "Finance Constraints and Inventory Investment: Empirical Tests with Panel Data," Macroeconomics 0411015, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0411015 Note: Type of Document - pdf; pages: 29
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    File URL: http://econwpa.repec.org/eps/mac/papers/0411/0411015.pdf
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    References listed on IDEAS

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    Cited by:

    1. Jerzy Marzec & Małgorzata Pawłowska, 2012. "Zależność między kredytem kupieckim a bankowym w modelu zapasów – wyniki badań branżowych w Polsce," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 26, pages 117-128.
    2. Nikola Dvornak & Marion Kohler, 2007. "Housing Wealth, Stock Market Wealth and Consumption: A Panel Analysis for Australia," The Economic Record, The Economic Society of Australia, pages 117-130.

    More about this item

    Keywords

    information asymmetries; finance constraints; liquidity constraints; inventories; inventory investment; Povel and Raith model; negative cash flow;

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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