Change in Inventory and Firm Valuation

Abstract

Hakim, Luthfi A. (2005). Change in Inventory andFirm Valuation. Yogyakarta. International Program, Faculty of Economics, Islamic University of Indonesia. Fundamental analysis has been the primary approach usedby security analysts for making investment choices. It assumes that the value of a stock can be determined by careful examinations of a stock can be determined by careful examination of fundamental value drivers. Oneof the drivers is the informativeness change in inventory. The purpose of this study is to examine whether knowledge of the informativeness of change in inventory is useful for firm valuation and whether earning positively influence stock price. A firm's change in inventory is informative if its percentage in cost of good sold is positively and significantly associated with its lagone percentage of production added to inventory (a measure of change in inventory, andother firms). Analyses then are performed to examine the association between stock price and earnings. Result consistently show that earning is correlate positively and significantly with stock price, but the results also show the association is inconsistently lower for the firm with informative change in inventory. Thus, the knowledge of informativeness of change in inventory is not useful for firm valuation for firm that listed at Jakarta Stock Exchange.