A well-known but under-emphasized feature of the business cycle is that the flow of internal finance is highly procyclical. We argue that finance constraints lead firms to offset a large proportion of internal finance fluctuations through inventory (dis)investment. We construct three panels of...

Over the last decade, research has shown that financing constraints have an important impact on many aspects of firm behavior and aggregate fluctuations. This paper undertakes a critical comparison of the three main financing constraint hypotheses- -the bank lending, collateral, and internal...

This study provides new evidence of the importance of financing constraints for explaining the dramatic cycles in inventory investment. We compare the empirical performance of different financial variables (coverage ratio, cash stocks, and cash flow) used in previous research to test for the...