Can Stakeholder Orientation Improve Inventory Efficiency? Evidence from a Quasi-natural Experiment

71 Pages Posted: 5 Mar 2020 Last revised: 2 Jun 2020

See all articles by Yunxiao Liu

Yunxiao Liu

Shanghai University

Woochan Kim

Korea University Business School; European Corporate Governance Institute (ECGI); Asian Institute of Corporate Governance (AICG)

Date Written: February 19, 2020

Abstract

This study investigates whether and how firms’ stakeholder orientation affects their inventory efficiency as well as financial performance. Using U.S. state legislatures’ staggered adoption of constituency statutes over a 24-year period (1984–2007) as a quasi-natural experiment, we show that greater stakeholder orientation significantly increases manufacturing firms’ inventory efficiency. We also find that this result is stronger in firms that can benefit the most from stakeholder orientation: firms facing dynamic environments, high labor intensity, or low customer concentration. Further mediation analysis reveals that the improvement in inventory efficiency is an important channel through which stakeholder orientation enhances firm value, thus providing evidence that stakeholder orientation decreases optimal inventory level. Additional analyses show that the improvement in inventory efficiency after constituency statutes adoption also holds for retailing firms, although to a lesser extent. Finally, our results survive a battery of robustness tests.

Keywords: constituency statutes; stakeholder orientation; CSR; inventory efficiency; firm performance

JEL Classification: G39, M11

Suggested Citation

Liu, Yunxiao and Kim, Woochan, Can Stakeholder Orientation Improve Inventory Efficiency? Evidence from a Quasi-natural Experiment (February 19, 2020). European Corporate Governance Institute – Finance Working Paper No. 664/2020, Available at SSRN: https://ssrn.com/abstract=3547940 or http://dx.doi.org/10.2139/ssrn.3547940

Yunxiao Liu

Shanghai University ( email )

China

Woochan Kim (Contact Author)

Korea University Business School ( email )

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Asian Institute of Corporate Governance (AICG) ( email )

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