Inventory Decisions Under Political Violence

47 Pages Posted: 10 Mar 2021 Last revised: 17 Mar 2022

See all articles by Claudia Custodio

Claudia Custodio

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Bernardo Mendes

Imperial College Business School

Diogo Mendes

Stockholm School of Economics; Swedish House of Finance

Date Written: March 16, 2022

Abstract

We estimate the effect of violent political conflicts on firm inventory purchase decisions using monthly data of 431 clients of a multinational beverage supplier in Mozambique. Firms decrease inventory purchases by up to 19% in response to conflicts occurring within a 10km radius. Small firms show a stronger decline compared to large firms, and are more likely to stop their purchases temporarily, and permanently. We find consistent heterogeneous effects across firm size using annual data on manufacturing firms. Small firms are disproportionately affected by political violence, which might exacerbate already existing differences to large firms in developing economies.

Keywords: Political Violence, Inventory Purchases, Working Capital Investment, Developing Countries, Uncertainty

JEL Classification: D22, D74, G31, I32, O12

Suggested Citation

Custodio, Claudia and Mendes, Bernardo and Mendes, Diogo, Inventory Decisions Under Political Violence (March 16, 2022). Swedish House of Finance Research Paper No. 21-06, Available at SSRN: https://ssrn.com/abstract=3776784 or http://dx.doi.org/10.2139/ssrn.3776784

Claudia Custodio

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Bernardo Mendes

Imperial College Business School ( email )

South Kensington Campus
London, SW7 2AZ
Portugal

Diogo Mendes (Contact Author)

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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