Economic policy uncertainty and corporate inventory holding: evidence from emerging economies

Purpose This study aims to investigate how economic policy uncertainty (EPU) influences the inventory levels of 6,150 companies in ten emerging economies, specifically Chile, Brazil, China, Colombia, Hong Kong, India, Mexico, Pakistan, Russia and Singapore. Design/methodology/approach The data used in this study is of quarterly frequency from 2004Q1 to 2020Q4 collected from the COMPUSTAT global database. To estimate the coefficients, this study has employed a two-step GMM model. Findings We have discovered new evidence indicating a curvilinear relationship, specifically an inverted U-shaped pattern, between economic policy uncertainty (EPU) and corporate inventory holdings. These findings remain resilient when subjected to various rigorous tests. Furthermore, we observe that firms with lower financial constraints are capable of increasing their inventory holdings to a significant extent in the presence of high economic policy uncertainty (EPU) than firms facing higher financial constraints. Originality/value Our research adds to the expanding body of literature that explores the impact of economic policy uncertainty on firm-level decision-making. We provide fresh evidence regarding the correlation between economic policy uncertainty and inventory holding, specifically focusing on emerging economies worldwide. Furthermore, we make a valuable contribution to the existing literature by examining whether the association between economic policy uncertainty and inventory holdings is influenced by the extent of financial constraints.