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What Actually Happened to the Inventories of American Companies Between 1981 and 2000?

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Author Info

  • Hong Chen

    ()
    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

  • Murray Z. Frank

    ()
    (Carlson School of Management, University of Minnesota, Minneapolis, Minnesota 55455)

  • Owen Q. Wu

    ()
    (Sauder School of Business, University of British Columbia, Vancouver, British Columbia V6T 1Z2, Canada)

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    Abstract

    This paper examines the inventories of publicly traded American manufacturing companies between 1981 and 2000. The median of inventory holding periods were reduced from 96 days to 81 days. The average rate of inventory reduction is about 2% per year. The greatest reduction was found for work-in-process inventory, which declined by about 6% per year. Finished-goods inventories did not decline. Firms with abnormally high inventories have abnormally poor long-term stock returns. Firms with slightly lower than average inventories have good stock returns, but firms with the lowest inventories have only ordinary returns.

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    File URL: http://dx.doi.org/10.1287/mnsc.1050.0368
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 51 (2005)
    Issue (Month): 7 (July)
    Pages: 1015-1031

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    Handle: RePEc:inm:ormnsc:v:51:y:2005:i:7:p:1015-1031

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    Related research

    Keywords: inventory; just in time; supply chain; manufacturing;

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    Cited by:
    1. Cannon, Alan R., 2008. "Inventory improvement and financial performance," International Journal of Production Economics, Elsevier, vol. 115(2), pages 581-593, October.
    2. Obermaier, Robert, 2012. "German inventory to sales ratios 1971–2005—An empirical analysis of business practice," International Journal of Production Economics, Elsevier, vol. 135(2), pages 964-976.
    3. Kroes, James R. & Manikas, Andrew S., 2014. "Cash flow management and manufacturing firm financial performance: A longitudinal perspective," International Journal of Production Economics, Elsevier, vol. 148(C), pages 37-50.
    4. Rahaman, Mohammad M. & Zaman, Ashraf Al, 2013. "Management quality and the cost of debt: Does management matter to lenders?," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 854-874.
    5. Kolias, Georgios D. & Dimelis, Sophia P. & Filios, Vasilios P., 2011. "An empirical analysis of inventory turnover behaviour in Greek retail sector: 2000-2005," International Journal of Production Economics, Elsevier, vol. 133(1), pages 143-153, September.
    6. Robb, David J. & Liu, Fei & Lai, Richard & Ren, Z. Justin, 2012. "Inventory in mainland China: Historical, industry, and geographic perspectives," International Journal of Production Economics, Elsevier, vol. 135(1), pages 440-450.
    7. Gong, Qiguo & Lai, K.K. & Wang, Shouyang, 2008. "Supply chain networks: Closed Jackson network models and properties," International Journal of Production Economics, Elsevier, vol. 113(2), pages 567-574, June.
    8. Tribó, Josep A., 2009. "Firms' stock market flotation: Effects on inventory policy," International Journal of Production Economics, Elsevier, vol. 118(1), pages 10-18, March.
    9. Bergenwall, Amy L. & Chen, Chialin & White, Richard E., 2012. "TPS's process design in American automotive plants and its effects on the triple bottom line and sustainability," International Journal of Production Economics, Elsevier, vol. 140(1), pages 374-384.
    10. Childerhouse, P. & Disney, S.M. & Towill, D.R., 2008. "On the impact of order volatility in the European automotive sector," International Journal of Production Economics, Elsevier, vol. 114(1), pages 2-13, July.

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