The impact of inventory dynamics on long-term stock returns - An empirical investigation of U.S. manufacturing companies

摘要

This paper investigates the relationship between the inventory dynamics and long-term stock returns of a large panel of U.S. manufacturing firms over the time period from 1991 to 2010. We propose two measures of inventory dynamics: one metric to assess the fluctuations of quarterly inventories within the year and a second metric to quantify relative year-over-year inventory growth. Our results indicate that within-year inventory volatility (Ⅳ) and abnormal year-over-year inventory growth (ABI) are associated with abnormal stock returns. Both metrics cannot be entirely explained by common risk factors. We find that firms with high Ⅳ and low ABI have the best long-term stock returns, and that stock performance decreases monotonically with higher ABI values. Our results are robust to various control variables including size, book-to-market value, industry and prior performance. We therefore conclude that changes in inventory levels provide valuable insights into the risks and opportunities faced by a company.