The link between operational leanness and credit ratings

Although there is rich literature documenting the positive relationship between operational leanness and financial performance, recent research indicates that the effects of leanness may be more complex than is typically assumed. We explore the impact of two kinds of leanness, relative inventory leanness and relative PPE leanness, on credit ratings. We thus use an alternative lens to explore the financial implications of leanness. We analyze secondary U.S. data from 1985 to 2012, with 11,197 firm-year observations of manufacturing firms. Using panel data analysis, we show that inventory leanness is positively associated with credit ratings in a concave relationship. This is consistent with previous research that has looked at the impact of relative inventory leanness on equity performance. Conversely, we find that PPE leanness is negatively related with credit ratings in a concave relationship-in contrast to prior studies addressing the impact of PPE leanness on equity performance.