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The Impact of Inventory Turnover on Firm Value: Evidence from Chinese A-Share Manufacturing Listed Companies

Author(s)

Bingyuan Peng

Affiliation(s)

Department of Economy, Shenzhen University, Shenzhen, Guangdong, China

Abstract

Whether faster inventory turnover genuinely translates into higher firm value remains an open empirical question, particularly in the context of Chinese A-share manufacturers where supply-chain pressure and demand volatility vary sharply by firm size. Drawing on a panel of 2,153 manufacturing firms covering 2014-2023, this study treats lagged inventory turnover (t−1) as the key explanatory variable to mitigate simultaneity and reverse-causality concerns. Estimation relies on a two-way firm- and year-fixed effects specification, which absorbs time-invariant firm heterogeneity and common year shocks alike. Economically and statistically, the efficiency-value link is present. A 1% increase in the underlying inventory turnover is associated with a 0.0107 percentage point increase in ROA β=0.0107, 𝒑<𝟎.𝟎𝟏 and a 0.0639% increase in Tobin’s Q β=0.0639, 𝒑<𝟎.𝟎𝟓. Notably, the baseline result survives a battery of robustness exercises: substituting ROE for ROA, swapping in total asset turnover as an alternative efficiency proxy, logging the turnover measure, applying 5% winsorization, adding industry fixed effects, and re-estimating over a narrower 2019-2023 window all yield directionally consistent estimates. Heterogeneity enters strongly along the size dimension: the turnover-performance elasticity is roughly twice as large among smaller firms (β = 0.0085, p < 0.01) as among their larger counterparts (β = 0.0042, p < 0.05), suggesting that working-capital discipline matters most where financing frictions and supply-chain bargaining power are thinnest.

Keywords

Inventory Turnover; Firm Value; Operational Efficiency; Panel Data; China

References

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