How does operational competence translate into market value, when firms cannot credibly communicate their competence to the market? I consider the example of inventory and fill rates. When the market sees a high-inventory firm, it cannot tell whether the inventory is due to incompetence or a...

We model fixed investment incorporating the inventory decision of the firm. Using Dutch listed nonfinancial firms during 1985-2000, we find that the inventory stock is negatively associated with fixed investment. The results suggest that the inventory stock may be used by the firm as a buffer in...