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John R. Birge. Operations and finance interactions. Manufacturing & Service Operations Management, 2015, 17(1): 4-15.

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Article

Research on Inventory Decision of Loss-aversion Firms under Debt Financing

1School of Economics and Management, Shanxi Univesity, Taiyuan, China


Journal of Finance and Economics. 2018, Vol. 6 No. 6, 209-212
DOI: 10.12691/jfe-6-6-1
Copyright © 2018 Science and Education Publishing

Cite this paper:
Cao Guozhao, Li Yuge, Luo Haiwen. Research on Inventory Decision of Loss-aversion Firms under Debt Financing. Journal of Finance and Economics. 2018; 6(6):209-212. doi: 10.12691/jfe-6-6-1.

Correspondence to: Cao  Guozhao, School of Economics and Management, Shanxi Univesity, Taiyuan, China. Email: 854823226@qq.com

Abstract

By constructing the optimal inventory decision model of loss-aversion firm with and without debt, we analyze the influence of debt on firm’s inventory decision, and discuss the influence of loss aversion, production cost, and shortage cost on the firm’s optimal inventory. We show that when the firm is risk neutral, its optimal inventory is smaller under debt. The effects of debt on optimal inventory decreases with shortage cost and increases with production cost. However, the relationship of debt and optimal inventory is not clear when the firm is loss-averse.

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