Title: Geographical influences on Chinese inventory: an exploratory study

Authors: Richard Lai; Z. Justin Ren; David J. Robb

Addresses: Formerly of: The Wharton School, University of Pennsylvania, 3730 Walnut Street, Philadelphia, PA 19104, USA ' School of Management, Boston University, 595 Commonwealth Avenue, Boston, MA 02215, USA ' The University of Auckland Business School, Private Bag 92019, Auckland 1142, New Zealand; Research Center for Contemporary Management, Key Research Institute of Humanities and Social Sciences at Universities, School of Economics and Management, Tsinghua University, Beijing 100084, China

Abstract: We ask whether, in China, geographic location has explanatory power for firms' inventory turn, and why. To do this, we undertake a variance component analysis (VCA) of firm-level inventory turn, using a panel dataset of 1,531 unique Chinese firms spanning 1999-2008. Our identification arises from the fact that many locations have multiple firms and some firms have multiple locations. We find that city and province effects explain 18.4% and 6.3% of the variation in inventory turn respectively, constituting the most important effects after firm effects (50.0%) and ahead of year and industry effects. To understand why, we use seemingly unrelated regressions (SUR) to identify six city-specific effects that explain inventory turn. We then check how these effects impact inventory turn, by estimating how the effects-turn relationship is mediated by known drivers of inventory turn such as gross margin and lead time. For example, we find that distance from Beijing is associated with higher inventory turn via lower gross margins.

Keywords: inventory turns; China; operations management; economic geography; variance component analysis; VCA; geographical location; inventory levels; inventory management.

DOI: 10.1504/IJIR.2014.069187

International Journal of Inventory Research, 2014 Vol.2 No.3, pp.145 - 173

Published online: 05 May 2015 *

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