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The Effects of Firm Size and Sales Growth Rate on Inventory Turnover Performance in the U.S. Retail Sector

In: Retail Supply Chain Management

Author

Listed:
  • Vishal Gaur

    (Cornell University)

  • Saravanan Kesavan

    (University of North Carolina at Chapel Hill)

Abstract

Past research shows that inventory turnover varies substantially across firms as well as over time. A significant portion of this variation can be explained by gross margin, capital intensity, and sales surprise (the ratio of actual sales to expected sales for the year). We extend econometric models of inventory turnover by investigating the effects of firm size and sales growth rate on inventory turnover using data for 353 public listed US retailers for the period 1985–2003. With respect to size, we find strong evidence of diminishing returns to scale. With respect to sales growth rate, we find that inventory turnover increases with sales growth rate, but its rate of increase depends on firm size and on whether sales growth rate is positive or negative. Our results are useful in (1) helping managers make aggregate-level inventory decisions by showing how inventory turnover changes with size and sales growth, (2) employing inventory turnover in performance analysis, benchmarking and working capital management, and (3) identifying the causes of performance differences among firms and over time.

Suggested Citation

  • Vishal Gaur & Saravanan Kesavan, 2015. "The Effects of Firm Size and Sales Growth Rate on Inventory Turnover Performance in the U.S. Retail Sector," International Series in Operations Research & Management Science, in: Narendra Agrawal & Stephen A. Smith (ed.), Retail Supply Chain Management, edition 2, chapter 0, pages 25-52, Springer.
    • Handle: RePEc:spr:isochp:978-1-4899-7562-1_3
    DOI: 10.1007/978-1-4899-7562-1_3
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    Citations

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    Cited by:

    1. Yingying Xin & Xiao Zeng & Zhengying Luo, 2022. "Customers' tone in MD&A disclosure and suppliers' inventory efficiency: Evidence from China," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(8), pages 3833-3853, December.
    2. Şenay Ağca & John R. Birge & Zi'ang Wang & Jing Wu, 2023. "The impact of COVID‐19 on supply chain credit risk," Production and Operations Management, Production and Operations Management Society, vol. 32(12), pages 4088-4113, December.
    3. Dara G. Schniederjans & Mehrnaz Khalajhedayati, 2021. "Competitive sustainability and stakeholder engagement: Exploring awareness, motivation, and capability," Business Strategy and the Environment, Wiley Blackwell, vol. 30(2), pages 808-824, February.
    4. Wang, Haiyan & Masi, Donato & Dhamotharan, Lalitha & Day, Steven & Kumar, Ajay & Li, Tong & Singh, Gurmeet, 2022. "Unconventional path dependence: How adopting product take-back and recycling systems contributes to future eco-innovations," Journal of Business Research, Elsevier, vol. 142(C), pages 707-717.
    5. Eunhye (Olivia) Park & Woo-Hyuk Kim, 2021. "The effect of inventory turnover on financial performance in the US restaurant industry: The moderating role of exposure to commodity price risk," Tourism Economics, , vol. 27(7), pages 1417-1429, November.
    6. Dbouk, Wassim & Moussawi-Haidar, Lama & Jaber, Mohamad Y., 2020. "The effect of economic uncertainty on inventory and working capital for manufacturing firms," International Journal of Production Economics, Elsevier, vol. 230(C).
    7. Miltiadis Chalikias & Panagiota Lalou & Michalis Skordoulis, 2019. "Customer Exposure to Sellers, Probabilistic Optimization and Profit Research," Mathematics, MDPI, vol. 7(7), pages 1-7, July.
    8. Neba Bhalla & Inderjit Kaur & Rakesh Kumar Sharma, 2022. "Examining the Effect of Tax Reform Determinants, Firms’ Characteristics and Demographic Factors on the Financial Performance of Small and Micro Enterprises," Sustainability, MDPI, vol. 14(14), pages 1-18, July.
    9. Hofer, Christian & Barker, Jordan & Eroglu, Cuneyt, 2021. "Interorganizational imitation in supply chain relationships: The case of inventory leanness," International Journal of Production Economics, Elsevier, vol. 236(C).

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