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How do financial constraints and financing costs affect inventories? An empirical supply chain perspective

Kai Hoberg (Kühne Logistics University, Hamburg, Germany)
Margarita Protopappa-Sieke (Department of Supply Chain Management and Management Science, Faculty of Economic and Social Sciences, Universität zu Köln, Köln, Germany)
Sebastian Steinker (Kühne Logistics University, Hamburg, Germany)

International Journal of Physical Distribution & Logistics Management

ISSN: 0960-0035

Article publication date: 3 July 2017

Abstract

Purpose

The purpose of this paper is to identify the interplay between a firm’s financial situation and its inventory ownership in a single-firm and a two-firm perspective.

Design/methodology/approach

The analysis uses different secondary data sources to quantify the effect of both financial constraints and cost of capital on inventory holdings of public US firms. The authors first adopt a single-firm perspective and analyze whether financial constraints and cost of capital do generally affect the amount of inventory held. Next, the authors adopt a two-firm perspective and analyze the inventory ownership in customer-supplier relationships.

Findings

Inventory levels are affected by financial constraints and cost of capital. Results indicate that higher costs of capital are weakly associated with lower inventories. However, contrary to the authors’ expectations, firms that are less financially constrained hold less inventories than firms that are more financially constrained. Finally, the authors find that customers hold the larger fraction of supply chain inventory in supplier-customer dyads.

Practical implications

The authors’ results indicate that financial considerations generally play a role in inventory management. However, inventory holdings seem to be influenced only slightly by financing costs and inventory holdings between supplier and customer seem to be less than optimal from a financial perspective. Considering those financial aspects can lead to relevant financial advantages.

Originality/value

In contrast to other recent research, the authors study how the financial situation of a firm affects its inventory levels (not vice versa) and also consider inventories from a two-firm perspective.

Keywords

Citation

Hoberg, K., Protopappa-Sieke, M. and Steinker, S. (2017), "How do financial constraints and financing costs affect inventories? An empirical supply chain perspective", International Journal of Physical Distribution & Logistics Management, Vol. 47 No. 6, pp. 516-535. https://doi.org/10.1108/IJPDLM-05-2016-0142

Publisher

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Emerald Publishing Limited

Copyright © 2017, Emerald Publishing Limited