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Evidence On The Relation Between Inventory Changes, Earnings And Firm Value

Author

Listed:
  • Nilanjan Basu
  • Xing Wang

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.

Suggested Citation

  • Nilanjan Basu & Xing Wang, 2011. "Evidence On The Relation Between Inventory Changes, Earnings And Firm Value," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 5(3), pages 1-14.
    • Handle: RePEc:ibf:ijbfre:v:5:y:2011:i:3:p:1-14
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    Cited by:

    1. Joseph Brian Cumbie & John Donnellan, 2017. "The Impact of Working Capital Components on Firm Value in US Firms," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(8), pages 138-150, August.

    More about this item

    Keywords

    Inventory; Working capital management;

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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