Åsmund Jenssen
Working Paper 1997/8, 81 p. ISSN 0801-2504. ISBN 82-7553-112-8.
Lately, a number of theoretical papers, as well as a growing body of empirical research, have shown that financial market cannot justifiably be regarded as perfect. Indeed, most firms and individuals are likely to face constraints on the amount of equity and credit available, and, similarly, the effective costs of these financing sources will not be the same for everyone. This maybe due to information being asymmetrically distributed between agents in the financial markets. The present study provides an overview of this literature, and estimates a model of inventory behaviour with these insights as a basis, using a panel data set of Norwegian manufacturing firms, covering the period 1987-94. We also examine whether customers of large banks are more or less financially constrained than customers of small banks. The main results are that cash flow and leverage have significant effects on inventory investment in a way generally consistent with accepted theory. Also, large firms are less financially constrained than small. The results on the bank effects are ambiguous,; it would seem that customers of large banks are less financially constrained than the customers of small banks in periods of increasing sales, but more so when sales decline. While these results are certainly interesting, it must be emphasized very strongly indeed that they must be regarded as preliminary, and they may not stand up to closer scrutiny.