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

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

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.

Abnormal inventory, Firm performance, Firm risk, Trade payables, Trade receivables
0924-865X
Afrifa, Godfred Adjappong
ac714aad-7d0a-4a2a-bcfc-d09358b40b47
Alshehabi, Ahmad
f2a00982-509f-47c6-a1d1-71d3c7ff08a5
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Halabi, Hussein
abf2b13e-e1fe-4fe0-8beb-9a48059d8cfa
Afrifa, Godfred Adjappong
ac714aad-7d0a-4a2a-bcfc-d09358b40b47
Alshehabi, Ahmad
f2a00982-509f-47c6-a1d1-71d3c7ff08a5
Tingbani, Ishmael
e6b2741a-d792-4adf-84cc-a2f64d5545ca
Halabi, Hussein
abf2b13e-e1fe-4fe0-8beb-9a48059d8cfa

Afrifa, Godfred Adjappong, Alshehabi, Ahmad, Tingbani, Ishmael and Halabi, Hussein (2020) Abnormal inventory and performance in manufacturing companies: evidence from the trade credit channel. Review of Quantitative Finance and Accounting. (doi:10.1007/s11156-020-00903-y).

Record type: Article

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.

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More information

Published date: 30 June 2020
Keywords: Abnormal inventory, Firm performance, Firm risk, Trade payables, Trade receivables

Identifiers

Local EPrints ID: 443954
URI: http://eprints.soton.ac.uk/id/eprint/443954
ISSN: 0924-865X
PURE UUID: 60d7f3e8-9016-4c37-b0e0-e01d2645ead8
ORCID for Ishmael Tingbani: ORCID iD orcid.org/0000-0002-4012-1224

Catalogue record

Date deposited: 17 Sep 2020 16:41
Last modified: 18 Feb 2021 17:42

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Contributors

Author: Godfred Adjappong Afrifa
Author: Ahmad Alshehabi
Author: Hussein Halabi

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