| The use of Just-in-Time (JIT) inventory systems is widespread among US manufacturing firms. There is, however, little research evidence to support the view that JIT improves firm performance. In fact, studies by Balakrishnan, Linsmeier, and Venkatachalam (1996) and Inman and Mehra (1993) have identified decreases in financial performance measures subsequent to JIT adoption. In both studies, the authors suggest, without supporting data, that their results were due to industry-specific factors. In this study, I also investigate the effect of JIT adoption on firm performance. In order to control for possible industry-specific factors, I used stock market standardized abnormal returns (SAR) and industry-scaled ROA as my measures of firm performance. I also investigated the association of certain firm-specific characteristics with each performance measure. For a sample of 85 JIT-adopting firms, I found significant positive SARs on the date of the first public announcement of JIT adoption by those firms. In addition, the size of a firm's LIFO reserve and the source (financial press or other press) of the public announcement were both positively associated with the SARs. For a sample of 95 JIT-adopting firms, I found no significant positive or negative changes in industry-scaled ROA from the three-year period prior to JIT adoption to the three-year period subsequent to JIT adoption. However, decreases in the inventory levels of JIT-adopting firms subsequent to adoption and receipt of a Shingo Award subsequent to adoption were both positively associated with increases in industry-scaled ROA subsequent to adoption. |
