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The impact of acquisitions on inventory performance

The impact of acquisitions on inventory performance PurposeThe purpose of this paper is to examine the relationship between acquisitions and inventory performance. Specifically, it analyzes the inventory performance (inventory level) of acquirers and their targets pre- and post-acquisition.Design/methodology/approachUsing several business databases, a sample of 270 horizontal acquisitions by US firms between 1996 and 2004 is subject to multivariate analysis. Various robustness tests are applied to validate the results.FindingsThree main results are found. First, the acquirer’s inventory performance is normally better than its target’s prior to the acquisition, consistent with acquirers taking over less efficient firms rather than cherry picking the more efficient ones. Second, inventory performance improves over time in the post-acquisition period in those cases where the acquirer is more efficient than the target. Third, inventory performance deteriorates over time in the post-acquisition period in those cases where the acquirer is less efficient than the target. The results are consistent with acquisitions being associated with both efficiency gains and efficiency losses due to (in)efficiency transfers from acquirers to targets.Practical implicationsFrom the management point of view, the study delivers the strongest message to companies that have substantial inventories and for whom efficient inventory management is vital to overall performance. Managers who are unaware of the potential consequences of acquisitions on inventory performance destroy value.Originality/valueThis research complements past research by showing that in spite of their synergetic potential, reducing inventory receives only limited attention in acquisitions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Advances in Management Research Emerald Publishing

The impact of acquisitions on inventory performance

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0972-7981
DOI
10.1108/JAMR-05-2016-0033
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine the relationship between acquisitions and inventory performance. Specifically, it analyzes the inventory performance (inventory level) of acquirers and their targets pre- and post-acquisition.Design/methodology/approachUsing several business databases, a sample of 270 horizontal acquisitions by US firms between 1996 and 2004 is subject to multivariate analysis. Various robustness tests are applied to validate the results.FindingsThree main results are found. First, the acquirer’s inventory performance is normally better than its target’s prior to the acquisition, consistent with acquirers taking over less efficient firms rather than cherry picking the more efficient ones. Second, inventory performance improves over time in the post-acquisition period in those cases where the acquirer is more efficient than the target. Third, inventory performance deteriorates over time in the post-acquisition period in those cases where the acquirer is less efficient than the target. The results are consistent with acquisitions being associated with both efficiency gains and efficiency losses due to (in)efficiency transfers from acquirers to targets.Practical implicationsFrom the management point of view, the study delivers the strongest message to companies that have substantial inventories and for whom efficient inventory management is vital to overall performance. Managers who are unaware of the potential consequences of acquisitions on inventory performance destroy value.Originality/valueThis research complements past research by showing that in spite of their synergetic potential, reducing inventory receives only limited attention in acquisitions.

Journal

Journal of Advances in Management ResearchEmerald Publishing

Published: Aug 7, 2017

References