Financing constraints and inventories

Ward Brown and Urs Haegler

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper puts forward the existence of financing constraints as a possible explanation for two main empirical regularities about inventories; that (i) inventory investment is procyclical, and that (ii) the inventory-sales relationship displays highly positive serial correlation. There are no costs shocks, and in the numerical computations demand shocks are assumed to be serially uncorrelated. When financing constraints are not binding, the model predicts that the firm's optimal inventory investment is counter-cyclical. However, this prediction is reversed for a firm with binding financing constraints. Moreover, some persistence in the inventory-sales relationship is also generated by the model.

JEL-codes: D92 E22 G32 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2000-12-01
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119093

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