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Bianco, Marco and Gamba, Andrea (2019) Inventory and corporate risk management. Review of Corporate Finance Studies, 8 (1). pp. 97-145. doi:10.1093/rcfs/cfy007 ISSN 2046-9128.
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Official URL: https://doi.org/10.1093/rcfs/cfy007
Abstract
We examine the role of inventory in corporate risk management with a dynamic model of a firm exposed to costly external finance and featuring endogenous default. We find that inventory management allows net worth risk management irrespective of the level of current net worth, because it does not affect the trade off between external finance and risk management. We show that inventory and cash holdings are synergic tools: while the first is a valuable operational hedge against commodity price risk, the second enhances the hedge offered by inventory in the face of costly external finance. Using our model, we rationalize the empirical incidence of inventory and cash holdings in the cross-section of U.S. manufacturing corporations, showing that savings and storage of raw materials are both positively related to financing constraints and cash flow risk.
| Item Type: | Journal Article | ||||||||
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| Subjects: | H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HF Commerce |
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| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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| Library of Congress Subject Headings (LCSH): | Primary commodities -- Mathematical models, Corporations | ||||||||
| Journal or Publication Title: | Review of Corporate Finance Studies | ||||||||
| Publisher: | Oxford University Press | ||||||||
| ISSN: | 2046-9128 | ||||||||
| Official Date: | 1 March 2019 | ||||||||
| Dates: |
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| Volume: | 8 | ||||||||
| Number: | 1 | ||||||||
| Page Range: | pp. 97-145 | ||||||||
| DOI: | 10.1093/rcfs/cfy007 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Reuse Statement (publisher, data, author rights): | This is a pre-copyedited, author-produced version of an article accepted for publication in Review of Corporate Finance Studies following peer review. The version of record available online at: Marco Bianco, Andrea Gamba; Inventory and Corporate Risk Management, The Review of Corporate Finance Studies, , cfy007, https://doi.org/10.1093/rcfs/cfy007 | ||||||||
| Access rights to Published version: | Restricted or Subscription Access | ||||||||
| Date of first compliant deposit: | 27 September 2018 | ||||||||
| Date of first compliant Open Access: | 5 November 2020 | ||||||||
| RIOXX Funder/Project Grant: |
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