Rights statement: This is a pre-copy-editing, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Sudipto Dasgupta, Erica X N Li, Dong Yan; Inventory Behavior and Financial Constraints: Theory and Evidence, The Review of Financial Studies, , hhy064, https://doi.org/10.1093/rfs/hhy064 is available online at: https://academic.oup.com/rfs/article/32/3/1188/5036235
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Inventory Behavior and Financial Constraints
T2 - Theory and Evidence
AU - Dasgupta, Sudipto
AU - Li, Erica
AU - Yan, Dong
N1 - This is a pre-copy-editing, author-produced PDF of an article accepted for publication in The Review of Financial Studies following peer review. The definitive publisher-authenticated version Sudipto Dasgupta, Erica X N Li, Dong Yan; Inventory Behavior and Financial Constraints: Theory and Evidence, The Review of Financial Studies, , hhy064, https://doi.org/10.1093/rfs/hhy064 is available online at: https://academic.oup.com/rfs/article/32/3/1188/5036235
PY - 2019/3/1
Y1 - 2019/3/1
N2 - We model the interaction of financial constraints, capacity constraints, and the response of production and inventory to cost and demand shocks. The model predicts that in response to favorable shocks, financially constrained firms are unable to build inventory as rapidly as are unconstrained firms. However, because the favorable shocks gradually ease the financial constraints, constrained firms continue to build inventory and eventually carry surplus inventory (relative to unconstrained firms) to unfavorable states. This allows them to deplete inventory more aggressively in response to unfavorable shocks. Our empirical evidence provides broad support for the model’s predictions.
AB - We model the interaction of financial constraints, capacity constraints, and the response of production and inventory to cost and demand shocks. The model predicts that in response to favorable shocks, financially constrained firms are unable to build inventory as rapidly as are unconstrained firms. However, because the favorable shocks gradually ease the financial constraints, constrained firms continue to build inventory and eventually carry surplus inventory (relative to unconstrained firms) to unfavorable states. This allows them to deplete inventory more aggressively in response to unfavorable shocks. Our empirical evidence provides broad support for the model’s predictions.
U2 - 10.1093/rfs/hhy064
DO - 10.1093/rfs/hhy064
M3 - Journal article
VL - 32
SP - 1188
EP - 1233
JO - Review of Financial Studies
JF - Review of Financial Studies
SN - 0893-9454
IS - 3
ER -