Purpose: This study examines the relationship between acquisitions and inventory performance. Specifically, it analyzes the inventory performance (inventory level) of acquirers and their targets pre- and post-acquisition.
Methodology: Using several business databases a sample of 270 horizontal acquisitions by U.S. firms between 1996 and 2004 is subject to multivariate analysis. Various robustness tests are applied to validate the results.
Findings: Three main results are found. First, the acquirer's inventory performance is 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. Our results are consistent with acquisitions being associated with both efficiency gains and efficiency losses due to (in)efficiency transfers from acquirers to targets.
Practical implications: From the management point of view, our 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/value: This research complements past research by showing that in spite of their synergetic potential, reducing inventory receive only limited attention in acquisitions.