Inventories, Liquidity, and Contractual Risk in African Manufacturing

97-020

45 Pages Posted: 27 Mar 1998

See all articles by Marcel Fafchamps

Marcel Fafchamps

Stanford University - Freeman Spogli Institute for International Studies

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics; Tinbergen Institute; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Remco Oostendorp

Vrije Universiteit; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); University of Oxford - Centre for the Study of African Economies (CSAE)

Date Written: August 1997

Abstract

This paper tests whether the stockout/precautionary motive applies to inventories and liquid assets held by Zimbabwean manufacturing firms. The evidence indicates that involvement in imports and exports is a major source of contractual risk. Concerns about the timeliness of input deliveries and late payment by clients are primary motives behind the accumulation of inputs and, to a lesser extent, the constitution of cash reserves. This is consistent with the role of inventories as a hedge against stockout risk. We find little evidence of inventory and liquidity build-up against market risk, but this may be an artifact of the way fluctuations in sales are measured in the data. Perfect fungibility between various inventories and between inventories and liquid assets is rejected. Implications for policy are discussed.

JEL Classification: O11

Suggested Citation

Fafchamps, Marcel and Gunning, Jan Willem and Oostendorp, Remco, Inventories, Liquidity, and Contractual Risk in African Manufacturing (August 1997). 97-020. Available at SSRN: https://ssrn.com/abstract=71489 or http://dx.doi.org/10.2139/ssrn.71489

Marcel Fafchamps (Contact Author)

Stanford University - Freeman Spogli Institute for International Studies ( email )

Stanford, CA 94305
United States

Jan Willem Gunning

Vrije Universiteit Amsterdam, School of Business and Economics ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands
+ 310 20 444 6141 (Phone)
+ 310 20 444 6004 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

Remco Oostendorp

Vrije Universiteit ( email )

De Boelelaan 1105
Amsterdam, 1081HV
Netherlands

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

University of Oxford - Centre for the Study of African Economies (CSAE) ( email )

Oxford OX1 3UL
United Kingdom

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