IE-OPIM Joint Research Seminar Series 2010-20111
Room: FENS G035
Date/Time: May 25th Wednesday, 13:40-14:30
Do Merged Firms Benefit from Inventory Pooling?
Firms' interest for engaging in merger and acquisition activities in various sectors and scales, despite many failed examples, triggers researchers' curiosity for investigating the reasons and results of these activities. The consolidated and enlarged power and the obtained synergies by avoiding the duplicating work seem to be an important motivation for mergers. This study empirically investigates whether merged firms facilitate this synergy also to derive inventory pooling benefits. The seminal inventory pooling theory shows that when the inventories for several demand sources are aggregated and a joint inventory decision is made, (i) total inventory related costs can be decreased by the decreased safety stock, (ii) savings in inventory decrease with the correlation between demands, and (iii) savings in inventory can increase or decrease with the demand variation. By using firm-level data covering a sample of 246 same-industry mergers carried out in U.S. between 1981 and 2009, we show that merged firms do realize significant improvements in overall inventory performance compared to their industries, which is measured by inventory turnover rate (IT), the ratio of a firm's cost of goods sold to its average inventory level. We also show that as the theory suggests, the improvement in inventory holding is inversely related with the pre-merger demand correlation between the merged firms. While the theory has mixed results on the effect of demand variation on the pooling benefit, we find that in general the merger of firms with more variable demand observe less inventory synergies after merger. Our results indicate that executives and shareholders are generally right in their expectations that mergers would utilize consolidated synergies at least in managing inventories to cut costs in trace of increasing profits.
Nagihan Çömez holds a B.S. degree in industrial engineering from Bogazici University, an M.S. degree with concentration in Supply Chain Management and a Ph.D. in Management Science from the University of Texas at Dallas. She joined the Bilkent University, Faculty of Business Administration in 2007. Her research interests focus on inventory management and coordination in supply chains particularly on inventory sharing, inventory-pricing models, and empricial inventory analyses. She teaches courses on operations management and supply chain management.