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Economic policy uncertainty and corporate inventory holdings: evidence from China

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  • Jianyu Zeng
  • Teng Zhong
  • Fan He

Abstract

We investigate the impact of economic policy uncertainty (EPU) on corporate inventory holdings in China over the period 2007–2017. We find that EPU leads firms to significantly reduce inventory holdings and this effect is particularly pronounced among non‐state‐owned enterprises. The adjustment of inventory holdings enhances firms’ operating and market performance consequently. In addition, firms with greater financial constraints or stronger external governance are more affected by EPU. Further exploration shows that EPU induces high precautionary cash holdings, which crowds out inventories. Our results illustrate that firms reallocate between inventories and cash to cope with uncertainty associated with economic policy changes.

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  • Jianyu Zeng & Teng Zhong & Fan He, 2020. "Economic policy uncertainty and corporate inventory holdings: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1727-1757, June.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:2:p:1727-1757
    DOI: 10.1111/acfi.12511
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