Inventory Write-Downs in the Semiconductor Industry

56 Pages Posted: 9 Nov 2016

See all articles by Hui Chen

Hui Chen

University of Zurich

Sundaresh Ramnath

University of Miami - Department of Accounting

Srinivasan Rangan

Indian Institute of Management (IIMB), Bangalore

Steve Rock

University of Colorado at Boulder - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: September 2016

Abstract

We study motives for and impacts of management discretion in inventory valuation. The semiconductor industry, with continual output price declines and rapid product obsolescence, provides an ideal setting to examine managers’ inventory write-down and production decisions. In this context, we develop a measure of ‘excess inventory’ and find that inventory write-downs are strongly correlated with this measure. We also find that inventory write-downs are timed strategically in periods of poor performance consistent with ‘big bath’ incentives. We construct a proxy for abnormal write-downs, and find that it is positively associated with subsequent operating performance, and negatively associated with future write-downs. Neither analysts, nor investors appear to fully appreciate the predictable implications of abnormal write-downs for subsequent operating performance.

Keywords: inventory, earnings management, semiconductor industry

Suggested Citation

Chen, Hui and Ramnath, Sundaresh and Rangan, Srinivasan P. and Rock, Steven Karl, Inventory Write-Downs in the Semiconductor Industry (September 2016). IIM Bangalore Research Paper No. 524. Available at SSRN: https://ssrn.com/abstract=2866234 or http://dx.doi.org/10.2139/ssrn.2866234

Hui Chen (Contact Author)

University of Zurich ( email )

Plattenstrasse 14
Zurich, CH-8032
Switzerland

Sundaresh Ramnath

University of Miami - Department of Accounting ( email )

Coral Gables, FL 33146-6531
United States
305-284-6668 (Phone)

Srinivasan P. Rangan

Indian Institute of Management (IIMB), Bangalore

Bannerghatta Road
Bangalore, Karnataka 560076
India

Steven Karl Rock

University of Colorado at Boulder - Department of Accounting ( email )

419 UCB
Boulder, CO 80309-0419
United States
303-735-5009 (Phone)
303-492-5962 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
26
Abstract Views
323
PlumX Metrics