Original Article

China Accounting and Finance Review

, 16:20

First online:

Open Access This content is freely available online to anyone, anywhere at any time.

Vertical Integration and Inventory Management Efficiency *

  • Jun HuangAffiliated withInstitute of Accounting and Finance, Shanghai University of Finance and Economics Email author 
  • , Shuang XueAffiliated withInstitute of Accounting and Finance, Shanghai University of Finance and Economics
  • , Yun HongAffiliated withCollege of Business Administration, Hunan University

Abstract

This paper investigates the role of vertical integration in the inventory management of a supply chain. Taking Chinese listed companies from 2001 to 2010 as our sample, we find that vertically integrated firms have lower inventory holdings and volatility, indicating that vertical integration improves firms’ inventory management efficiency. Further analyses show that this effect is more pronounced for firms located in regions with a lower level of marketisation and for firms facing higher demand volatility and business growth. In addition, the more thoroughly firms have accomplished vertical integration, the more greatly vertical integration increases inventory management efficiency. Finally, we find that the positive impact of vertical integration on inventory management is more significant in industries with no overcapacity, for diversified firms, and during non-crisis periods.

Keywords:

Vertical Integration Supply Chain Inventory