EVIDENCE ON THE RELATION BETWEEN INVENTORY CHANGES, EARNINGS AND FIRM VALUE

Nilanjan Basu and Xing Wang

The International Journal of Business and Finance Research, 2011, vol. 5, issue 3, 1-14

Abstract: Prior studies contend that an unexpected increase in inventory reflects a firm’s difficulty in generating sales and results in negative earnings growth and stock returns. Using a sample with over 85,000 observations for the period of 1950-2005, we confirm the negative relation between inventory changes and firm performance but find that the relation is sensitive to the choice of sample period. Moreover, this relation is somewhat attenuated for firms in the wholesale and retail industry as well as for firms that normally carry low levels of inventory. Our findings suggest that the macroeconomic and industry-specific environments are important moderators of the relation between inventory changes and firm performance.

Keywords: Inventory; Working capital management (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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