Dissertation/Thesis Abstract

Investigating select inventory issues and market performance of manufacturing firms
by Jhang, Shih Sian, Ph.D., State University of New York at Buffalo, 2016, 209; 10163804
Abstract (Summary)

The dissertation contains three essays focusing on inventory issues, including inventory trends, inventory configuration, interactions between inventory and trade credits, target inventory, and the speeds of partial adjustment of observed (actual) inventory toward target inventory in manufacturing firms. We also examine how these dimensions of inventory are related to market performance via the portfolio-based asset pricing approaches.

In Essay 1, we investigate the inventory trends and inventory configuration in manufacturing firms and explore whether firms with high market performance are related to certain inventory components allocation, including raw material (RM), working-in-process (WIP), and finished goods of inventory (FG). Utilizing data from COMPUSTAT and CRSP, we find that the trend of total inventory days still declines from 1980 to 2013, in which the WIP plays an important role; however, the inventory trend climbs during the volatile environment, caused by the increase of FG. By constructing benchmarking metrics and utilizing portfolio-based asset pricing approach, we find that investors can earn relatively high excess returns via constructing portfolios which invest in the relatively low inventory ratio of FG.

In Essay 2, we examine the interactions between trade credits and inventory decisions. We construct three interface equations via using econometrics methods to mitigate the endogeneity problems and to examine the directions of causality. We find that higher FG lure managers to set up loose trade credit policy to attract customers; however, the firms offering loose trade credits to customers may not mitigate the excess inventory problem. Also, we document that the short-term hedging mechanism holds while the pass-through mechanism may be mitigated or offset by other factors.

In Essay 3, we link the partial adjustment theory to inventory and explore how the inventory adjustment speeds toward target inventory are related to the deviation from the target inventory, macro environment, firm-specific variables, and market performance. We present five variables to explain the variation of inventory ratio based on the firm fixed effect model. Using the typical firm model, we find that the target inventory exists, and the inventory adjustment speed is faster when inventory is above the target, when the firm is in the high volatile era, and when the firm is under the financial constraint status. Also, the firm will take several actions when its inventory deviates from the target level. From the individual firm model, we find that the speeds of partial adjustment of actual inventory toward target inventory are higher for the small firms and the firms with higher demand uncertainty. Finally, the positive relationship between the inventory adjustment speeds and the annual excess returns exists.

Indexing (document details)
Advisor: Lin, Winston T.
Commitee: Ogden, Joseph P., Suresh, Nallan C.
School: State University of New York at Buffalo
Department: Operations Management and Strategy
School Location: United States -- New York
Source: DAI-B 78/03(E), Dissertation Abstracts International
Subjects: Finance, Operations research
Keywords: Inventory components, Market performance, Simultaneous equations systems, Speeds of partial adjustment, Target inventory, Trade credit
Publication Number: 10163804
ISBN: 9781369184457
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