Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel

Godfred Adjapong Afrifa (), Ahmad Alshehabi (), Ishmael Tingbani () and Hussein Halabi ()
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Godfred Adjapong Afrifa: University of Kent
Ahmad Alshehabi: Canterbury Christ Church University
Ishmael Tingbani: Bournemouth University
Hussein Halabi: Swansea University

Review of Quantitative Finance and Accounting, 2021, vol. 56, issue 2, No 7, 617 pages

Abstract: Abstract This paper examines the value of abnormal inventory and the channels through which firms decrease abnormally high inventory or increase abnormally low inventory for a sample of 976 United Kingdom manufacturing firms over the period from 2006 to 2015. Using GMM regressions, the results show that (i) an optimal inventory policy exists; and (ii) firms that are able to converge at this optimal inventory level by either decreasing abnormally high inventory or increasing abnormally low inventory to improve operational and stock performance. Importantly, the results show that trade receivables and trade payables are the channels through which firms achieve efficient inventory management.

Keywords: Abnormal inventory; Firm performance; Trade receivables; Trade payables; Firm risk (search for similar items in EconPapers)
JEL-codes: D22 G31 G32 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s11156-020-00903-y

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