Production smoothing, firms' heterogeneity, and financial constraints: evidence from a panel of UK firms

In this paper we provide an empirical analysis of heterogeneityin firms' inventory behavior, using a panel of UK manufacturingfirms. We first investigate how the relative variance of productionand sales differs across firms. We then use variants of thelinear quadratic inventory model in order to analyze potentialheterogeneity in firms' incentives to smooth production. Theresults suggest that incentives to smooth production are notprevalent This conclusion also holds when firms are partitionedaccording to whether they are more or leu likely to face finanrialconstraints.