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

Author

Listed:
  • Godfred Adjapong Afrifa

    (University of Kent)

  • Ahmad Alshehabi

    (Canterbury Christ Church University)

  • Ishmael Tingbani

    (Bournemouth University)

  • Hussein Halabi

    (Swansea University)

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.

Suggested Citation

  • Godfred Adjapong Afrifa & Ahmad Alshehabi & Ishmael Tingbani & Hussein Halabi, 2021. "Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel," Review of Quantitative Finance and Accounting, Springer, vol. 56(2), pages 581-617, February.
    • Handle: RePEc:kap:rqfnac:v:56:y:2021:i:2:d:10.1007_s11156-020-00903-y
    DOI: 10.1007/s11156-020-00903-y
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    More about this item

    Keywords

    Abnormal inventory; Firm performance; Trade receivables; Trade payables; Firm risk;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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