The Impact of COVID-19 on a Firm’s Product Inventory Management and the Role of Corporate Governance

The Impact of COVID-19 on a Firm’s Product Inventory Management and the Role of Corporate Governance

This study examines the impact of the COVID-19 pandemic on the firm’s product inventory management. Extant studies regarding inventory management have suggested that market uncertainties are significantly associated with a firm’s inventory management. Given that COVID-19 increased the market uncertainties, this study postulates that COVID-19 adversely affects a firm’s inventory management. Using data on Korean listed manufacturing firms for the period 2017-2021, this study found a negative association between the COVID-19 pandemic and a firm’s inventory management. Moreover, by using data on the proportion of outside directors, foreign investor ownership, and blockholder ownership, this study investigates the role of corporate governance in the negative relationship between the COVID-19 pandemic and inventory management. The results reveal that strong corporate governance mitigates the negative effects of COVID-19. Specifically, the negative association between COVID-19 and inventory management is more pronounced for firms with weak corporate governance, while it has become statistically insignificant for firms with strong corporate governance. This study provides insights on the impact of COVID-19 on a firm’s operations and practical implications for market participants, including investors and regulators, that strong corporate governance facilitates firms to minimize the adverse impact of exogenous shocks.