Demand-supply Mismatch and Stock Market Reaction: Evidence from Excess Inventory Announcements
|This paper documents that excess inventory announcements, an indication of demand-supply mismatch, are associated with statistically and economically significant negative stock market reaction. The results are based on a sample of 418 excess inventory announcements made during 1990-2002. Over a two-day period (the day of the announcement and the day before the announcement) the mean (median) stock market reaction is -5.89% (-3.80%), with more than 68% of the sample firms experiencing a negative market reaction. We find that when excess inventory is at the announcing firm’s customers, the market reaction is more negative than when the excess inventory is at the announcing firm. The stock market reaction is less negative for excess inventory announcements made by larger firms. Firms with higher growth prospects have more negative stock market reactions. We also provide descriptive results on the stock market reaction by industry, calendar time, and actions taken to deal with excess inventories.
|Prof.dr. M.B.M. de Koster