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Finance Constraints and Inventory Investment: Empirical Tests with Panel Data

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  • Rose Cunningham

    (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 no appear to generate differences in the sensitivity of inventory investment to cash flow during the sample period.

Suggested Citation

  • Rose Cunningham, 2004. "Finance Constraints and Inventory Investment: Empirical Tests with Panel Data," Macroeconomics 0411015, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0411015
    Note: Type of Document - pdf; pages: 29
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    References listed on IDEAS

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    Cited by:

    1. OBEMBE, O.B. & ARAWOMO, O. & Afolabi, Babatunde, 2012. "Financial Constraints and Inventory Investment of Listed Non-Financial Firms in Nigeria," Business and Management Research, Business and Management Research, Sciedu Press, vol. 1(1), pages 106-114, March.
    2. Gianni La Cava, 2005. "Financial Constraints, the User Cost of Capital and Corporate Investment in Australia," RBA Research Discussion Papers rdp2005-12, Reserve Bank of Australia.
    3. Jerzy Marzec & Małgorzata Pawłowska, 2012. "Zależność między kredytem kupieckim a bankowym w modelu zapasów – wyniki badań branżowych w Polsce," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 26, pages 117-128.

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    More about this item

    Keywords

    information asymmetries; finance constraints; liquidity constraints; inventories; inventory investment; Povel and Raith model; negative cash flow;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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