The Effects of Business Strategy and Inventory on the Relationship between Sales Manipulation and Future Profitability

Hwa Deuk Yi, Sambock Park and Jonghyun Kim
Additional contact information
Hwa Deuk Yi: School of Business, Hanyang University, 222 Wangsimni-ro, Seongdong-gu, Seoul 133-791, Korea
Sambock Park: College of Business and Economics, Hanyang University ERICA, 55 Hanyangdaehak-ro, Sangnok-gu, Ansan-si, Gyeonggi-do 15588, Korea
Jonghyun Kim: College of Business and Economics, Hanyang University ERICA, 55 Hanyangdaehak-ro, Sangnok-gu, Ansan-si, Gyeonggi-do 15588, Korea

Sustainability, 2019, vol. 11, issue 8, 1-18

Abstract: Many researchers have found that real activities manipulation undermines future profitability, because it deviates from normal operating activities. We are interested in sales manipulation, which is one type of real activities manipulation relating to corporate sustainability. First, we empirically examine whether the effects of sales manipulation on future profitability differ according to the strategies of a firm. Next, we divide sales manipulation as a type of real activities manipulation and optimal sales manipulation and then examine how the two types of sales manipulation affect future profitability. Finally, we examine how the effects of optimal sales manipulation on future profitability differ according to the firm’s strategies. The empirical findings show that the association between sales manipulation and future profitability is more negative (−) for a product differentiation strategy than for a cost leadership strategy. Further, the sales manipulation performed by firms with a high proportion of the starting inventory and a decrease in the inventory during the current year has a positive (+) impact on future profitability. Our results contribute to the literature on business strategy by presenting evidence that core management activities are related to future financial performance, according to the business strategy. In addition, our research shows that sales manipulation can turn into an optimal operating activity, depending on the firm’s situation.

Keywords: sales manipulation; future profitability; business strategy; inventory (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/11/8/2377/pdf (application/pdf)
https://www.mdpi.com/2071-1050/11/8/2377/ (text/html)

Related works:
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: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:8:p:2377-:d:224844

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().