Question

Discuss the factors determining the investment in inventory ans

Answer 1

Factors Affecting The Size OfInvestment In Inventories Or Determinants Of Inventories. If a firm maintains high level of safety stock because of relatively larger degree of uncertainty associated to production and sales, the size of investment in inventories is also higher.

Answer 2

Answer:

Using  panel  data,  the  current  study  seeks  to  analyze  the  determinants  of  inventory investment decisions in SMEs. To  reach the paper’s  objective, 4914 Portuguese SMEs were  selected,  obtaining  data  for  the  period  between  2003  and  2012.  To  estimate  the relationships  between  inventory  investment  and  the  determinants  of  inventory investment, dynamic panel data estimators were used, namely the GMM system (1998).  The results show that concerning inventory investment, Portuguese SMEs’ decisions are  pro-cyclical,  and  the  level  of  adjustment  towards  a  target  inventory  level  is  slow, probably  due  to  high  adjustment  costs  and/or  persistent  shocks  in  production  costs. Moreover,  SMEs  react  significantly  to  financial  pressure,  altering  their  level  of inventories.  Debt and borrowing costs are a restrictive  determinant  of  SME  inventory investment, and inventory investment is very sensitive to cash flow

Explanation: