Corporate culture and inventory behavior

We examine the impact of firm-level weak corporate culture on inventory management. Using machine-learning measures of corporate culture, we capture granular dimensions and find that weak corporate culture is associated with excess inventory holding, reflecting management's efforts to address operational inefficiencies. Through further analysis, we observe that these firms balance the costs and benefits of excess inventory to avoid the negative impact of stockouts, especially in environments with highly competitive market dynamics. This trend is particularly evident among equity-dependent companies that face the risk of delaying investments because of liquidity constraints. We also find that excess inventory holding in weak corporate culture firms differs from opportunistic practices associated with real earnings management. We conduct a battery of endogeneity tests to account for various factors influencing corporate culture. We highlight the critical role of corporate culture, offering insights into how improving corporate culture can enhance operational efficiency.