The Value relevance of Inventory Management

Abstract

Accounting Standard stipulate that firm should recognize idle facility expenses when it’s actual production is lower than its normal level. Using a sample of manufacturing firms during the period 2002-2009, this study indicates the number of firms engaging in opportunistic over-production experiences in the current period declines with regard to their future accounting performance. In addition, this study further indicates that financial analysts are aware of this phenomenon and appropriately reduce their forecasts of future earnings per share after the adoption period.