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Financing constraints and inventories

Brown, Ward and Haegler, Urs (2000) Financing constraints and inventories. Financial Markets Group Discussion Papers (367). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2000 The Authors
Divisions: Financial Markets Group
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: D - Microeconomics > D9 - Intertemporal Choice and Growth > D92 - Intertemporal Firm Choice and Growth, Investment, or Financing
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E22 - Capital; Investment (including Inventories); Capacity
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited: 04 Jul 2023 09:21
Last Modified: 16 May 2024 12:29

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