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

Godfred Adjapong Afrifa, Ahmad Alshehabi, Ishmael Tingbani, Hussein Halabi Orcid Logo

Review of Quantitative Finance and Accounting, Volume: 56, Issue: 2, Pages: 581 - 617

Swansea University Author: Hussein Halabi Orcid Logo

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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 (UK) manufacturing firms over the period from 2006 to 2015. Using GMM regressions, the results show that...

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Published in: Review of Quantitative Finance and Accounting
ISSN: 0924-865X 1573-7179
Published: Springer Science and Business Media LLC 2021
Online Access: Check full text

URI: https://cronfa.swan.ac.uk/Record/cronfa54447
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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 (UK) 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 byeither 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.
Keywords: Abnormal inventory; Firm performance; Trade receivables; Trade payables; Firm risk
College: School of Management
Funders: University of Kent
Issue: 2
Start Page: 581
End Page: 617