New insights into inventory dynamics and its financial implications: Evidence for United States and international public companies
Classical inventory models offer a variety of insights into the optimal way to manage inventories of individual products. Can insights from these models be used to explain the inventory dynamics of entire companies? Can one also judge on the quality of company operations using only public data? The goal of this dissertation is to address those issues using empirical data and investigate it in details for a variety of industries and countries. We start in the second chapter with analyzing absolute and relative inventories using a quarterly data panel and find empirical evidence that firms operating with more uncertain demand, longer lead times and higher margins have higher inventory levels. Our results demonstrate that classical inventory models can help with high-level strategic choices in addition to tactical decisions. Next, in the Chapter 3, we show that superior earnings are associated with the speed of change/responsiveness in inventory management, after controlling for industry- and firm-specific effects. In the final step, in the Chapter 4 we empirically study inventory dynamics for a large sample of publicly held companies from OECD nine countries. Depending on the country, our model explains between 76% and 95% of the variation in the absolute inventory and we show that raw materials inventory is the cash cycle component that has the highest negative significant association with accounting performance.
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