Purpose - This study analyzes the inventory investment – cash flow sensitivity for 166 manufacturing firms in Turkey listed in Borsa Istanbul. The time spans 2006-2018.
Methodology - Based on the previous literature, Lovell’s (1961) target adjustment model is used. The baseline equation model is estimated by the system Generalized Method of Moments (GMM).
Findings- The relationship between inventory investment and cash flow is statistically positive for constrained firms, while insignificant for unconstrained firms according to all models. The effect of Gross Domestic Product (GDP) on inventory investment is positive and significant for both constrained and unconstrained firms, this implies that GDP contributes to an increase in inventory investment.
Conclusion- This study is the first one that analyzes the inventory investment and cash flow relationships for Turkish manufacturing firms and
want to fulfill this gap in the literature. It is found that cash flow is positively significant for constrained firms according to size and age classification