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Financing Constraints and Inventory Investment: A Comparative Study with High-Frequency Panel Data

Robert E. Carpenter¹; Steven M. Fazzari²; Bruce C. Petersen³

¹ Emory University · ² Levy Economics Institute of Bard College · ³ Washington University

This study provides new evidence of the importance of financing constraints for explaining the dramatic cycles in inventory investment. We compare the empirical performance of different financial variables (coverage ratio, cash stocks, and cash flow) used in previous research to test for the presence of financing constraints. The comparison is undertaken in a common framework with an identical sample and high-frequency (quarterly) firm panel data. Cash flow is much more successful than cash stocks or coverage in explaining the facts about inventory investment across firm size, different inventory cycles, and different manufacturing sectors.

DOI

10.1162/003465398557799

Volume

80 (4)

Pages

513-519

Language

en

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