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Financing constraints and inventories

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  • Brown, Ward
  • Haegler, Urs

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.

Suggested Citation

  • Brown, Ward & Haegler, Urs, 2000. "Financing constraints and inventories," LSE Research Online Documents on Economics 119093, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:119093
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    File URL: http://eprints.lse.ac.uk/119093/
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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