Sensitivity about inventory leanness

Abstract

Purpose This study aims to suggest that firms and stock market investors are more sensitive about inventory leanness when industry information technology (IT) usage is high. First, when industry IT usage is high, a firm's inventory leanness is more responsive to information inputs (cash holding and sales efficiency). Second, when industry IT usage is high, the price-to-earnings ratio (indicative of stock market investors' willingness to pay a premium) is more sensitive to the firm's inventory leanness. Design/methodology/approach This study highlights the contextual role of industry IT usage during the 1998–2009 lost decade (wherein the steepest falls in manufacturing jobs happened in the USA). Findings The results highlight the significant contextual role of industry IT usage. In manufacturing industry sectors with high IT usage, (1) inventory levels of firms are more responsive to information inputs and (2) stock market investors have greater appreciation for inventory leanness. Originality/value The lost decade, 1998–2009, was a difficult period for the manufacturing industry. Nonetheless, there was variation in stock market valuations of manufacturing firms, with many firms outperforming others. Stock market investors were sensitive to inventory leanness. Firms that positively impressed stock market investors were strategically positioned in high IT usage industry sectors and prioritized inventory leanness. Further, their inventories were sensitive to information inputs – their inventories were leaner in response to improved sales-efficiency and/or shortage in cash.

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