Inventory investment and foreign ownership in Greek manufacturing firms

This paper draws on portfolio theory to model investment in inventories by the firm as one of a set of long-term and short-term decisions about assets and liabilities. The empirical model derived is a type of stock-adjustment model augmented with financial and fixed capital variables suggested by the portfolio model. An attempt is further made to explore any differences in the inventory investment behavior between domestic firms and firms with foreign ownership (partially or fully) as well as between firms of different size. The model was tested using a sample of 2544 Greek manufacturing firms. The results suggest that the portfolio model variables improve substantially the performance of the traditional stock-adjustment model, in particular among the foreign-owned firms and the group of relatively small in size firms. Statistically significant differences were observed in the parameters of the model between small and large firms, as well as between domestic and foreign-owned firms.