Inventory Heterogeneity

Firms have very different inventory levels. How much of this heterogeneity is due to differences among firms, versus among industries? Using all observations in COMPUSTAT for 1950 through 2004, we find that both industry and firm effects are significant. Further, firm effects are as strong as, if not stronger, than industry effects. In our baseline model, firm effects explain 33.1% of inventory heterogeneity; industry effects, 19.3%. These findings are robust to a number of sensitivity tests. Apart from the empirical contribution, the findings can be a useful stylized fact for further theoretical development into the origins of inventory heterogeneity