We study manufacturing firms' asymmetric inventory investment in response to sales changes. Focusing on the costs of resource adjustment and stockout that likely differ in sales‐increasing and sales‐decreasing periods, we predict and find that inventory investment declines less during periods with sales decreases than it rises during periods with sales increases. We validate this claim by showing that managers' expectations of future demand and desire to avoid inventory stockouts are important determinants of this asymmetry. In addition, we find that asymmetric inventory investment provides useful information for predicting future sales growth, and that both managers' and analysts' sales forecasts are positively associated with the asymmetry. Lastly, we document that forecasts of future sales growth that incorporate asymmetric inventory investment are associated with lower absolute forecast errors than benchmark forecasts. Overall, we highlight the importance of inventory information in understanding managers' resource adjustment and utilization decisions that have implications for forecasting future demand. Our findings on asymmetric inventory management provide new insights to fundamental analysis based on inventory signals.
We document that managers stockpile excess inventory to mitigate the operational risk posed by labor unions and to maintain bargaining power in labor negotiations. Inventory levels are higher for union firms and are incrementally higher preceding the renegotiation of collective bargaining agreements with unions. Inventory stockpiling at union firms is more salient when capital market pressure for transparency or information spillover from peers constrains managers from using disclosure strategies. We further show that managers weigh the costs and benefits of inventory stockpiling, as holding excess inventory due to the presence of a union is negatively associated with future profitability but provides the benefits of avoiding a stockout and mitigating negative outcomes from a strike. Our findings highlight the importance of a major stakeholder, i.e., labor, in managers' investment decision-making.
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