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- Title
Do MD&A Disclosures Help Users Interpret Disproportionate Inventory Increases?
- Authors
Yan Sun
- 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 and the favorability of MD&A inventory disclosures help users interpret disproportionate inventory increases and predict future firm performance.
- Subjects
CORPORATION reports; INVENTORIES; EARNINGS forecasting; MANUFACTURING industries; FINANCIAL disclosure; CORPORATE profits
- Publication
Accounting Review, 2010, Vol 85, Issue 4, p1411
- ISSN
0001-4826
- Publication type
Article
- DOI
10.2308/accr.2010.85.4.1411