Journal of Agricultural and Applied Economics, 30,2(December 1998):363–377 0 1998 Southern Agricultural Economics Association Impacts of Financial Characteristics and the Boom-Bust Cycle on the Farm Inventory-Cash Flow Relationship

The sensitivity of farm inventory investment to movements in cash flow is tested. Inven-tories should be sensitive to shifts in cash tlow because inventory investment is readily reversible and inventories are a significant portion of assets. Investmentmodels estimated with Kansas farm panel data indicate that: (a) farms absorb internal finance shocks by adjusting inventories, (b) the inventory investment of livestock and high-debt farms are more sensitive to movements in cash flow thancrop and low-debt farms, and (c) inventory investment is more sensitive to cash flow during the 1981–86 bust and the 198’7-92 re-covery than during the 1975–80 boom