The Effect of Financial Constraints on Inventory Holdings

Emil Bustos

No 1463, Working Paper Series from Research Institute of Industrial Economics

Abstract: This paper investigates the impact of financial constraints on firms’ inventory holdings, an area of significant interest given that inventories are volatile over the business cycle. I use detailed data on Swedish firms’ balance sheets, income statements, and credit scores. I employ a regression discontinuity design and a difference-in-differences analysis to examine the causal effects of financial constraints on inventory management. Firms with relaxed financing constraints increase their inventories by 20% when they get a better credit score, yet there is no robust effect on inventories relative to firm size. This study offers new insights into the influence of financial constraints on firms’ inventory strategies amidst changing economic conditions.

Keywords: Financial Constraints; Risk Management; Inventories; Credit Scores; Private Firms (search for similar items in EconPapers)
JEL-codes: D22 D25 G32 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2023-05-24
New Economics Papers: this item is included in nep-cfn, nep-eur and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:1463

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