The Effect of Ownership and Financing on Firm's Inventory and Profitability: An Empirical Analysis

33 Pages Posted: 29 Dec 2015

See all articles by Chun-Yu Ho

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Yuliang Oliver Yao

Lehigh University

Date Written: December 28, 2015

Abstract

We use a large-scale, firm-level panel dataset on Chinese manufacturing firms to examine the effect of ownership structure on inventory, the relationship between inventory and profitability and the effect of the availability of external financial resources on inventory for each ownership type firms. In addition, we test a number of the operational level factors examined in the prior literature such as capital intensity, gross margin, and sales growth in the setting of an emerging market (i.e., China). Our key findings are: (1) State owned firms, on average, have the higher inventory, than private firms. Relative to private firms, state owned firms hold inventories that are, on average, 4 million dollars higher. (2) The inventory for state owned firms decreases while that for foreign firms increases when external financial resources become more available to non-state firms. Interestingly, foreign firms may have lower inventory than private firms when the external financial resources are not sufficiently available but higher inventory than private firms when the external financial resources are sufficiently available. (3) Firms with lower inventory are associated with greater financial performance as measured by both returns on assets (ROA) and returns on sales (ROS). (4) And finally, firms with lower gross margin, higher capital intensity, higher cost of capital and higher sales growth have lower inventory. We discuss the theoretical and managerial implications of the findings.

Keywords: Inventory, Ownership Structure, Financial Markets, Emerging Markets

Suggested Citation

Ho, Chun-Yu and Rong, Ying and Yao, Yuliang, The Effect of Ownership and Financing on Firm's Inventory and Profitability: An Empirical Analysis (December 28, 2015). Available at SSRN: https://ssrn.com/abstract=2708852 or http://dx.doi.org/10.2139/ssrn.2708852

Chun-Yu Ho

State University of New York (SUNY) - Department of Economics ( email )

1400 Washington Ave
Albany, NY 12222
United States

Ying Rong

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.535 Fahuazhen Road
Shanghai Jiao Tong University
Shanghai, Shanghai 200052
China

Yuliang Yao (Contact Author)

Lehigh University ( email )

621 Taylor Street
Bethlehem, PA 18015
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
121
Abstract Views
694
rank
261,035
PlumX Metrics