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Investment in Inventories: An Empirical Microeconomic Model of Firm Behaviour

Donald Hay and Helen Louri ()

Oxford Economic Papers, 1994, vol. 46, issue 1, 157-70

Abstract: Inventory investment is one part of a decision nexus addressed by the firm including physical investment, finance, and trade credit. The analysis presented in this paper makes this explicit, drawing on portfolio theory to model balance sheet items. The model is tested for samples of U.K.-quoted companies for the period 1960-85, and is shown to perform better than standard stock-adjustment equations. The equations indicate different behavioral responses between a sample of large growth-oriented companies and a sample of smaller stable companies. There is also evidence that large company behavior changed in the turbulent economic conditions of the 1970s. Copyright 1994 by Royal Economic Society.

Date: 1994
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Working Paper: Investment in Inventories: An Empirical Microeconomic Model of Firm Behaviour (1991)
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