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Asymmetric Inventory Management and the Direction of Sales Changes†

Author

Listed:
  • Iny Hwang
  • Taejin Jung
  • Woo‐Jong Lee
  • Daniel G. Yang
Abstract
We study manufacturing firms' asymmetric inventory investment in response to sales changes. Focusing on the costs of resource adjustment and stockout that likely differ in sales‐increasing and sales‐decreasing periods, we predict and find that inventory investment declines less during periods with sales decreases than it rises during periods with sales increases. We validate this claim by showing that managers' expectations of future demand and desire to avoid inventory stockouts are important determinants of this asymmetry. In addition, we find that asymmetric inventory investment provides useful information for predicting future sales growth, and that both managers' and analysts' sales forecasts are positively associated with the asymmetry. Lastly, we document that forecasts of future sales growth that incorporate asymmetric inventory investment are associated with lower absolute forecast errors than benchmark forecasts. Overall, we highlight the importance of inventory information in understanding managers' resource adjustment and utilization decisions that have implications for forecasting future demand. Our findings on asymmetric inventory management provide new insights to fundamental analysis based on inventory signals. Gestion asymétrique des stocks et orientation de la fluctuation des ventes Les auteurs étudient l'investissement asymétrique des entreprises de fabrication dans les stocks en réaction à la fluctuation des ventes. En se penchant plus particulièrement sur les coûts de l'ajustement des ressources de production et de la rupture des stocks, coûts susceptibles de différer en période de croissance et de décroissance des ventes, les auteurs formulent et confirment l'hypothèse selon laquelle l'investissement dans les stocks décline moins durant les périodes de décroissance des ventes qu'il n'augmente durant les périodes de croissance des ventes. Ils valident cette observation en démontrant que les attentes des gestionnaires quant à la demande future et leur désir d’éviter les ruptures de stock sont d'importants déterminants de cette asymétrie. Ils constatent également que l'investissement asymétrique dans les stocks fournit de l'information utile à la prédiction de la croissance future des ventes et que les prévisions de ventes, tant celles des gestionnaires que celles des analystes, ont un lien positif avec l'asymétrie. Enfin, les données recueillies par les auteurs confirment que les prévisions de croissance future des ventes qui incorporent l'investissement asymétrique des entreprises dans les stocks sont associées à des erreurs prévisionnelles moins grandes en valeur absolue que les prévisions reposant sur des éléments de référence. Dans l'ensemble, l’étude met en relief l'importance de l'information relative aux stocks dans la compréhension des décisions d'ajustement et d'utilisation des ressources que prennent les gestionnaires et qui influent sur la prévision de la demande future. L'information livrée sur la gestion asymétrique des stocks ouvre de nouvelles perspectives à l'analyse fondamentale basée sur les indicateurs relatifs aux stocks.

Suggested Citation

  • Iny Hwang & Taejin Jung & Woo‐Jong Lee & Daniel G. Yang, 2021. "Asymmetric Inventory Management and the Direction of Sales Changes†," Contemporary Accounting Research, John Wiley & Sons, vol. 38(1), pages 676-706, March.
    • Handle: RePEc:wly:coacre:v:38:y:2021:i:1:p:676-706
    DOI: 10.1111/1911-3846.12635
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