Production Smoothing, Firms' Heterogeneity, and Financial Constraints: Evidence from a Panel of UK Firms

Alessandra Guariglia and Fabio Schiantarelli

Oxford Economic Papers, 1998, vol. 50, issue 1, 63-78

Abstract: In this paper, the authors provide an empirical analysis of heterogeneity in firms' inventory behavior using a panel of U.K. manufacturing firms. They first investigate how the relative variance of production and sales differs across firms. The authors then use variants of the linear quadratic inventory model in order to analyze potential heterogeneity in firms' incentives to smooth production. The results suggest that incentives to smooth production are not prevalent. This conclusion also holds when firms are partitioned according to whether they are more or less likely to face financial constraints. Copyright 1998 by Royal Economic Society.

Date: 1998
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