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

  • 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)

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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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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