Does economic policy uncertainty impact inventories and firm value? Evidence from the US economy
Why this work is in the frame
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Bibliographic record
Abstract
This paper develops an empirical model to explore how EPU impacts inventory levels in U.S. firms and the effect on firm value under high EPU. This is the first paper to investigate the impact of macroeconomic risk measured by the EPU on inventory and firm value. We apply panel data regression methodology to financial data from a COMPUSTAT sample of 330,905 quarterly observations between 2002 and 2023 for U.S.-based firms. We measure firm value using the market-to-book ratio of assets, which enables us to link inventory policy to market valuation directly. We find that with increased EPU, the total inventory levels, raw material, and finished goods inventory increase, while work-in-process (WIP) inventory level decreases. This indicates that during high EPU, firms increase raw material and finished goods inventory to hedge against supply and demand shortages, while streamlining their internal production processes and workflow, which lowers the WIP inventory, achieving higher inventory leanness. Our findings also indicate that inventory levels and firm value follow an inverted U-shaped relationship. A higher inventory level due to EPU is value-enhancing until it reaches a threshold point, beyond which a firm's value decreases.
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Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.002 | 0.002 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.000 | 0.000 |
| Science and technology studies | 0.000 | 0.001 |
| Scholarly communication | 0.001 | 0.001 |
| Open science | 0.001 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from it