The relationship between abnormal inventory growth and future earnings for U.S. public retailers

Saravanan Kesavan, Vidya Mani

Research output: Contribution to journalArticle

22 Scopus citations

Abstract

In this paper, we examine the relationship between inventory levels and one-year-ahead earnings of retailers using publicly available financial data. We use benchmarking metrics obtained from operations management literature to demonstrate an inverted-U relationship between abnormal inventory growth and one-year-ahead earnings per share for retailers. We also find that equity analysts do not fully incorporate the information contained in retailers' abnormal inventory growth in their earnings forecasts, resulting in systematic biases. Finally, we show that an investment strategy based on abnormal inventory growth yields significant abnormal stock market returns.

Original languageEnglish (US)
Pages (from-to)6-23
Number of pages18
JournalManufacturing and Service Operations Management
Volume15
Issue number1
DOIs
StatePublished - Jan 1 2013

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All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

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