Inventory Signals

Richard Lai ()

MPRA Paper from University Library of Munich, Germany

Abstract: How does operational competence translate into market value, when firms cannot credibly communicate their competence to the market? I consider the example of inventory and fill rates. When the market sees a high-inventory firm, it cannot tell whether the inventory is due to incompetence or a strategy to enhance fill rate. Firms might decide to signal their competence to the market by carrying less inventory. I show conditions for separating and pooling perfect Bayesian equilibria. I also provide empirical evidence for this theory that inventory has a signaling role. The theory could potentially provide a framework that describes one way in which a range of operational competences such as purchasing and outsourcing, translate to market value. Practically, it has implications for firms, such as how to strategically communicate to the market, reward managers, or even whether to go public and be subject to market pressures.

Keywords: Inventory; signaling; operations management; asymmetric information (search for similar items in EconPapers)
JEL-codes: D24 D82 M11 (search for similar items in EconPapers)
Date: 2006-06-25
View list of references

Downloads: (external link)
http://mpra.ub.uni-muenchen.de/4753/

Related works:
Working Paper: Inventory Signals (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:4753

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany
Address: Schackstr. 4, D-80539 Munich, Germany
Contact information at EDIRC.
Series data maintained by Ekkehart Schlicht ().