Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

Rose M. Cunningham ()

Macroeconomics from EconWPA

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.

Keywords: information asymmetries; finance constraints; liquidity constraints; inventories; inventory investment; Povel and Raith model; negative cash flow (search for similar items in EconPapers)
JEL-codes: E22 G14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-fin and nep-mac
Date: 2004-11-22
Note: Type of Document - pdf; pages: 29
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0411015

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