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

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.