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Market-Based Solutions to Vital Economic Issues


Market-Based Solutions to Vital Economic Issues
Feb 1, 2013

The Relationship Between Abnormal Inventory Growth and Future Earnings for U.S. Public Retailers


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.

Note: Research papers posted on Research Gate, including any findings, may differ from the final version chosen for publication in academic journals.

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