CFCM 11/02: Inventories, sales uncertainty and financial strength

Abstract

We investigate the empirical linkages between sales uncertainty and firms’ inventory investment behavior while controlling for firms’ financial strength. Using large panels of manufacturing firms from several European countries we find that higher sales uncertainty leads to larger stocks of inventories. We also identify an indirect effect of sales uncertainty on inventory accumulation through the financial strength of firms. Our results provide evidence that financial strength mitigates the adverse effects of uncertainty.

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Published in the Journal of Banking and Finance, 2012, 36 (9), pp. 2512–2521

Authors

Mustafa Caglayan, Sara Maioli and Simona Mateut

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