1. Inventory management under financial distress: an empirical analysis
- Author
-
Sebastian Steinker, Mario Pesch, and Kai Hoberg
- Subjects
Actuarial science ,Strategy and Management ,media_common.quotation_subject ,05 social sciences ,Sample (statistics) ,Management Science and Operations Research ,Industrial and Manufacturing Engineering ,Inventory valuation ,Distress ,Bankruptcy ,Cash ,0502 economics and business ,Days in inventory ,Economics ,Default ,050207 economics ,050203 business & management ,media_common ,Panel data - Abstract
This study analyses inventory reductions as a means of short-term financing of firms under financial distress. We use quarterly panel data of U.S. manufacturing firms for the period from 1995 to 2007. We identify a sample of 198 distressed firms for which we analyse changes in relative inventory. Approximately 70% of distressed firms reduce their inventories until the end of their individual distress periods. This decrease corresponds to a mean reduction of 18.7 inventory days or 9.4%. Additional regression analyses show that differences in inventory adjustments depend on pre-distress inventory performance, firm size, and turnaround strategy. We also compile a sample of 142 firms that defaulted to analyse inventory actions of unsuccessful turnarounds. Our findings indicate that defaulting firms also reduce their inventories but that the reductions are lower than those of firms that resolve their financial distress. We conclude that distressed firms use short-term inventory adjustments to free up cash and ...
- Published
- 2016