The Market Value of Inventory

44 Pages Posted: 25 Jun 2018

See all articles by Jeff Zeyun Chen

Jeff Zeyun Chen

Texas Christian University

Boochun Jung

University of Hawaii at Manoa - School of Accountancy

Duri Park

Drexel University

Philip B. Shane

College of William & Mary

Date Written: May 2018


This paper investigates how supply chain management (SCM) efficiency affects the value investors attach to the change in a company’s inventory holdings. Based on a large number of U.S. firms from 1971 to 2013, we find that, on average, one dollar of inventory change is valued at $0.507 in the stock market. Decomposition into normal and abnormal inventory changes reveals that the market value of one dollar of abnormal inventory change is 43% smaller than that of normal inventory change, where a normal change moves the inventory balance to an estimated optimal level, and an abnormal change refers to the gap between actual inventory change and the estimated optimal change. We also investigate inventory turnover and gross margin and find economically and statistically significant relations between these proxies for efficient SCM and the value the market attaches to inventory changes. Finally, we find that the market attaches a higher value to inventory changes of firms with better growth prospects, higher sales predictability, and tighter financial constraints.

Keywords: Market Value of Inventory Holdings; Abnormal Inventory; Supply Chain Management

JEL Classification: M41

Suggested Citation

Chen, Jeff Zeyun and Jung, Boochun and Park, Duri and Shane, Philip B., The Market Value of Inventory (May 2018). Available at SSRN: or

Jeff Zeyun Chen

Texas Christian University ( email )

2900 Lubbock Ave
Fort Worth, TX 76109
United States

Boochun Jung (Contact Author)

University of Hawaii at Manoa - School of Accountancy ( email )

College of Business Administration
Honolulu, HI 96822
United States

Duri Park

Drexel University ( email )

3141 Chestnut St
Philadelphia, PA 19104
United States

Philip B. Shane

College of William & Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

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