Inventory (Dis)Investment, Internal Finance Fluctuations, and the Business Cycle

Robert E. Carpenter (), Steven Mark Fazzari () and Bruce Clayton Petersen ()

Abstract: A well-known but under-emphasized feature of the business cycle is that the flow of internal finance is highly procyclical. We argue that finance constraints lead firms to offset a large proportion of internal finance fluctuations through inventory (dis)investment. We construct three panels of quarterly firm data, each of which contains a large fraction of aggregate inventories and covers a major inventory cycle. Our findings show that the impact of internal finance on inventory investment is greater for small firms than large, consistent with the existence of finance constraints. Internal finance, however, is also economically important for large firms. These results explain part of the large cyclical amplitude of inventory investment. Furthermore, heterogeneity in our results across time, especially between the 1981-82 recession and the 1990-91 recession, helps explain differences in the composition of aggregate investment shortfalls during contractions.

JEL-codes: E (search for similar items in EconPapers)
Date: Written 1994-01-12
Note: 2 word for windows binary files. File 1 has 29 pages text with one table enclosed. File 2 has 5 tables in 4 pages. 3 figures accompany this paper but are not enclosed. They are available upon request from Carpenter
View list of references View citations in EconPapers

Downloads: (external link)
http://129.3.20.41/eps/mac/papers/9401/9401001.pdf (application/pdf)
http://129.3.20.41/eps/mac/papers/9401/9401001.ps.gz (application/postscript)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Macroeconomics from EconWPA
Series data maintained by EconWPA ().