Survive the recession by managing cash

Goldberg, Stephen R.; Phillips, Mary Jones; Williams, H. Paul

doi:10.1002/jcaf.20540

Cited by 2 publications

(1 citation statement)

References 1 publication

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“…Especially during the latest economic downturn in 2008-2009, more and more companies were forced to reduce their assets to minimize financing cost and maintain fair credit ratings. Companies typically utilize three levers to minimize working capital requirements: reduce credit days from customers, extend credit days to suppliers, and optimize inventories within the company (Goldberg et al , 2009). Although optimizing accounts payable and accounts receivables has been widely discussed in the finance literature (Brealey et al , 2008), optimizing inventories has mainly been the focus of operations management community for the past decades (Porteus, 2002).…”

Section: Introductionmentioning

confidence: 99%

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

Hoberg

Protopappa‐Sieke

Steinker

2017

IJPDLM

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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.

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Section: Introductionmentioning

confidence: 99%