Inventory Investment and Cash Flow Sensitivity: Evidence From Turkish Firms

Journal of Economics, Business and Finance, 2020

7 Pages Posted: 18 Jul 2020

See all articles by Omer Tan

Omer Tan

Marmara University

Emin Avcı

affiliation not provided to SSRN

Date Written: June 20, 2020

Abstract

Purpose - This study analyzes the inventory investment – cash flow sensitivity for 166 manufacturing firms in Turkey listed in Borsa Istanbul. The time spans 2006-2018.

Methodology - Based on the previous literature, Lovell’s (1961) target adjustment model is used. The baseline equation model is estimated by the system Generalized Method of Moments (GMM).

Findings- The relationship between inventory investment and cash flow is statistically positive for constrained firms, while insignificant for unconstrained firms according to all models. The effect of Gross Domestic Product (GDP) on inventory investment is positive and significant for both constrained and unconstrained firms, this implies that GDP contributes to an increase in inventory investment.

Conclusion- This study is the first one that analyzes the inventory investment and cash flow relationships for Turkish manufacturing firms and wants to fulfill this gap in the literature. It is found that cash flow is positively significant for constrained firms according to size and age classification criteria.

Keywords: Inventory Management, Cash Flows, Turkey, GMM Model, Financial Constraints

JEL Classification: D80, G30, G31

Suggested Citation

Tan, Omer Faruk and Avcı, Emin, Inventory Investment and Cash Flow Sensitivity: Evidence From Turkish Firms (June 20, 2020). Journal of Economics, Business and Finance, 2020, Available at SSRN: https://ssrn.com/abstract=3635810

Omer Faruk Tan (Contact Author)

Marmara University ( email )

Goztepe Campus, Faculty of Business Administration
Kadıkoy
Istanbul, 34722
Turkey

Emin Avcı

affiliation not provided to SSRN

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