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Asymmetric Inventory Management and the Direction of Sales Changes *
Author(s) -
Hwang Iny,
Jung Taejin,
Lee WooJong,
Yang Daniel G.
Publication year - 2020
Publication title -
contemporary accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.769
H-Index - 99
eISSN - 1911-3846
pISSN - 0823-9150
DOI - 10.1111/1911-3846.12635
Subject(s) - inventory investment , stockout , inventory management , investment (military) , inventory valuation , information asymmetry , benchmark (surveying) , perpetual inventory , business , lost sales , sales management , investment decisions , inventory turnover , demand forecasting , economics , industrial organization , inventory theory , microeconomics , marketing , econometrics , operations management , production (economics) , finance , operations research , geodesy , engineering , politics , political science , stock exchange , law , geography
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.