|
Inventory increases, MD&A disclosures, and firm performance
Yan Sun,
Washington University in St. Louis
ABSTRACT. This paper investigates whether MD&A disclosures have predictive ability for future firm performance in cases of unusual inventory increases. Among a sample of 568 manufacturing firms with unusual inventory increases, 282 (50%) explain these changes in MD&A. I find that the favorability of the provided explanations is positively associated with a firm’s profitability and sales growth in at least the subsequent two years, suggesting that MD&A disclosures on inventory increases are credible. I also find that firms that explain inventory changes do not have significantly higher future profitability than firms that do not, indicating that a firm’s disclosure decision is not necessarily associated with its earnings quality or its prospects. Further analyses show that firms with higher sales growth, greater performance variability, and more intense product market competition are less likely to explain unusual inventory increases.
Full-Text is no longer available online. Please contact the author(s) for more information about this manuscript.
Back to Session Listing
|