Financing constraints and inventory investment: A comparative study with high-frequency panel data

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, ca sh stocks, and cash flow) used in previous research to test for the presenc e of financing constraints. The comparison is undertaken in a common framew ork with an identical sample and high-frequency (quarterly) firm panel data . Cash flow is much more successful than cash stocks or coverage in explain ing the facts about inventory investment across firm size, different invent ory cycles, and different manufacturing sectors.