The Effect of Inventory Flexibility on Financial Performance: Moderating Role of Firm Size and Growth

Abstract

This study aims to explore how flexible inventory management affects financial performance from the perspective of quick adjustments of inventory deviations, in which firm growth and firm size are moderators. Using the empirical data collected from 1953 listed manufacturing enterprises in China from 2005 to 2021, this research employs the moderation model combined with the three-way interaction analysis to test hypotheses. The results reveal that the relationship between inventory flexibility and financial performance is positive, while firm growth weakens this relationship. Furthermore, firm size reduces the negative moderating effect of firm growth on the relationship between inventory flexibility and financial performance. This paper contributes to a better understanding of the role of quick adjustments in flexible inventory management. From a developing country perspective, this study identifies the important relationships between inventory flexibility, firm growth, firm size and financial performance. The findings will be of interest to both emerging and other developing countries.