GEP Research Paper 05/23
Inventory investment, global engagement, and financial constraints in the UK : evidence from micro data
Alessandra Guariglia and Simona Mateut
Abstract
We use a panel of 9,381 UK firms over the period 1993-2003 to study the links between firms' financial health and their global engagement status. We estimate error-correction inventory investment equations augmented with financial variables, and interpret the sensitivity of inventory investment to the latter as a measure of the strength of the financial constraints faced by firms. We find that smaller, younger, and more risky firms, on the one hand; and firms that do not export and are not foreign owned, on the other, exhibit higher sensitivities. Moreover, global engagement substantially reduces the sensitivities displayed by the former categories of firms: this suggests that it shields firms from financial constraints.
Issued in September 2005.
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