Inventories and Risk in African Manufacturing

Marcel Fafchamps (), Jan Willem Gunning () and Remco Oostendorp

Working Papers Series from Centre for the Study of African Economies, University of Oxford

Abstract: This paper analyses the effects of risk on the holding of inventories and liquid assets by manufacturing firms. Using a panel data set for Zimbabwe which includes firm-specific measures of contractual risk, we show that contractual risk has a major effect on the holding of stocks of inputs and, to a lesser extent, the constitution of cash reserves. This is consistent with the role of inventories as a hedge against stockout risk. By contrast, we find that firms facing more inter-annual market risk hold less inventories. This suggests that African manufacturers prefer adapting to long-term market fluctuations as they materialise rather than building up inventories. This interpretation is consistent with the finding that high market risk firms also have a low capacity utilisation rate.

Keywords: INVENTORIES; MANUFACTURING INDUSTRIES; RISK; CONTRACTS (search for similar items in EconPapers)
JEL-codes: M10 M11 D81 (search for similar items in EconPapers)
Date: 1999
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