Abstract
We estimate the effect of violent political conflicts on firm inventory purchase decisions using monthly data of 431 clients of a multinational beverage supplier in Mozambique. Firms reduce inventory purchases by up to 19% in response to conflicts occurring within a 10 km radius. This is observed exclusively among small firms, which reduce their purchases by 28%–32% compared to larger firms. Small firms are also more likely to temporarily or permanently halt their purchases. However, conditional on survival, the effect is short-lived. Our results underscore the disproportionate impact of political violence on small firms, potentially widening the gap between small and large businesses in developing economies.
•Violent political conflicts affect small firms’ short-term inventory investment.•Small firms are less likely to survive after nearby conflicts occur.•For surviving firms, the impact on inventory investment is temporary.•Large firms have greater resources to cushion the impact of conflict.•Violence widens the gap between small and large firms in developing countries.
