5. Conclusion
The purpose of this study was the investigation of existence of a possible linear
relationship between inventory holdings and accounting based measures of
performance for a recent group of Greek manufacturing firms belonging to the food,
textiles and chemicals sectors. Results verified by the PLRT confirm the existence of a
robust linear relationship but only in the sector of chemicals. Therefore, another
parametric or a non-parametric model is needed to describe this relationship in the
other sectors.
Because our research is based on firm-specific financial data, it has certain
limitations that can be addressed in future research using more detailed data sets. In
this context, given the great number of the possible determinants of performance it is
difficult to isolate the effect of inventories even by using large samples and advanced
methodologies. Thus a major issue of concern is that of omitted variables.
Another limitation could be the questionable validity of the accounting data used
after the results presented by two recent international studies (Leuz et al., 2003;
Bhattacharya et al., 2003) – the only two among others which include Greece in their
sample. Both studies conclude that earnings management is more pronounced in
Greece than in other countries. Given that the published accounting data is the only
input in our models we must interpret the results cautiously. Future research
examining whether or not (and if yes to what extent) the reported in the financial
statements earnings and inventory levels are manipulated would lead to a better
understanding of the relationship.