Inventory turnover and corporate performance in an emerging market: a nonlinear dynamic analysis

This study investigates the dynamic nonlinear relationship between inventory turnover and corporate performance in Vietnam, an emerging market. Utilising a panel dataset comprising 7,261 firm-year observations from 571 non-financial firms listed on the Vietnamese stock exchange between 2008 and 2022, we apply the least squares dummy variable corrected (LSDVC) estimator to address dynamic panel bias, endogeneity, and unobserved heterogeneity. The empirical findings consistently reveal a significant inverted U-shaped relationship between inventory turnover and corporate performance, indicating that increasing inventory turnover enhances profitability up to an optimal threshold, beyond which excessive inventory reduction diminishes performance due to higher operational risk and reduced flexibility. Robustness tests using alternative performance measures, inventory metrics, and the system GMM estimator confirm the stability of this nonlinear effect. By identifying the turnover level that maximises firm performance, this study contributes to the inventory-finance literature and offers practical guidance for firms seeking to optimise inventory strategies in emerging markets.