Is Inventory Management Asymmetric to the Direction of Sales Change? Korean Evidence

Purpose: This study investigates whether asymmetry in inventory management exists in Korean-listed firms. A recent study using US-listed firm data found that inventory adjustment is asymmetric in relation to the direction of sales change. They argue that this asymmetry is caused by keeping safe stock in case future demand rises even when sales fall. However, given the recent trend of minimizing inventory costs and Korean characteristics, it is unclear whether the asymmetry in inventory adjustment also exists in Korean firms. Design/methodology/approach: This study uses multiple regression analysis to look into various aspects of inventory management in data from Korean-listed firms, such as listed markets, detailed inventory accounts, and production rates. Findings: KOSDAQ-listed firms exhibit inventory management asymmetry, whereas KOSPI-listed firms do not. This difference only appears in the work-in-process account. Furthermore, when the asymmetry of inventory adjustment is found, it confirms that inventory at the time of sales decrease is incrementally informative for future sales increase. Research limitations/implications: This study demonstrates that when sales decline, Korean firms, particularly those listed on the KOSPI, suppress their safe stock holdings. Compared to the results of previous studies, this study implies that Korean firms have a stronger tendency to suppress the costs of holding inventory and shows that inventories during sales declines are less reflective of managers' expectations of future sales increases. Originality/value: This is the first study to examine the asymmetry of inventory management in Korean firms. This study provides practical and important implications for the analysis and interpretation of inventory accounts.