How Does Inventory Investment React To Uncertainty In Oil Price?

Abstract

This paper examines how oil price uncertainty (OPU) affects inventory investment of the U.S. listed firms during the years 1985-2020. I empirically find the negative association between OPU and corporate inventory investment. This adverse effect is exacerbated for firms operating in oil industries or located in non-oil-producing states. High financial constraints or external finance dependence, extreme industry competition, and low irreversible investment also transmission channels strengthening the effect of OPU inventory adjustment. My findings survive a battery of robustness checks, in which alternative and control variables are applied. Overall, my study implies that inventory management is profoundly shaped by OPU.