Do MD&A Disclosures Help Users Interpret Disproportionate Inventory Increases?

46 Pages Posted: 15 Sep 2006 Last revised: 18 May 2010

See all articles by Yan Sun

Yan Sun

Saint Louis University

Date Written: December 1, 2009

Abstract

This study investigates whether MD&A disclosures have predictive ability for future firm performance in cases of disproportionate inventory increases. Using a sample of 568 manufacturing firms with disproportionate inventory increases, I find that the favorability of explanations for inventory changes in MD&A is positively associated with a firm’s profitability and sales growth in the subsequent three years. I also find that future profitability and sales growth of firms that do not explain disproportionate inventory increases in MD&A fall between those of firms with favorable explanations and firms with unfavorable explanations. These results suggest that the existence of and the favorability of MD&A inventory disclosures help users interpret disproportionate inventory increases and predict future firm performance.

Keywords: MD&A disclosures, inventory increases, firm performance, financial statement analysis

JEL Classification: M41, M45, D82, G14

Suggested Citation

Sun, Yan, Do MD&A Disclosures Help Users Interpret Disproportionate Inventory Increases? (December 1, 2009). AAA 2007 Financial Accounting & Reporting Section (FARS) Meeting, Available at SSRN: https://ssrn.com/abstract=930471 or http://dx.doi.org/10.2139/ssrn.930471

Yan Sun (Contact Author)

Saint Louis University ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
411
Abstract Views
2,552
rank
78,516
PlumX Metrics