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Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

Rose Cunningham ()

Staff Working Papers from Bank of Canada

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 not appear to generate differences in the sensitivity of inventory investment to cash flow during the sample period.

Keywords: Business fluctuations and cycles; Financial institutions (search for similar items in EconPapers)
JEL-codes: E22 G14 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2004
New Economics Papers: this item is included in nep-acc, nep-cfn, nep-ent, nep-fin, nep-mac and nep-mfd
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