Inventory Investment, Global Engagement, and Financial Constraints in the UK: Evidence from Micro Data

Abstract

We use a panel of 9381 UK firms to study the links between firms’ global engagement status and their financial health. We estimate inventory investment equations augmented with a financial composition variable, 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; and firms that do not export and are not foreign owned 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.Financial constraints, Global engagement, Inventory investment.