Ownership Structure and Inventory Policy

This paper makes use of a database of Spanish manufacturing firms to explore the effect of a firm's ownership structure on its inventory policy. We have argued that the presence of institutional investors reduces a firm's liquidity needs and prevents overinvestment policies. This, in turn, leads to lower equilibrium inventory levels. Also, we expect, on average, less inventory investment when bank-equity financing is compared with bank-debt financing. Finally, other components of ownership structure like the number of blockholders prevent inventory overinvestment. This may have an impact on the economic cycle as more firms are floated on the stock market hence changing their ownership structure