However, more than that, our results contradict the recent empirical studies of Swamidass (2007) and Capkun et al. (2009), both concerned with the relationship between the inventories and performance of US manufacturing firms. While Swamidass (2007) argues that inventory holding could be a function of firms’ financial performance, where lower inventory-to-sales ratios are associated with higher performance, Capkun et al. (2009) assume financial performance to be a negatively related function of inventory holding. While our results do not support the latter, we have several reasons to discuss the former. First, our results are also in contrast to those of Swamidass (2007). We find a positive rather than negative relationship between inventory holding and firm performance: increasing inventories lead to increasing financial performance (and vice versa). Our results suggest that inventories which are too low make it much more difficult to run business processes cost-efficiently. Second, our results support the
interpretation of inventory holding as a function of financial performance. Like Swamidass (2007), we also found top-performing firms reducing their inventories, but on a higher level. Nevertheless, we argue that bottom performers suffer from low inventories, while he argues that bottom performers suffer from a variety of problems which make it hard for them to reduce inventories.