Linking Inventory Component Stickiness to Credit Ratings: The Moderating Role of Environmental Dynamism and Complexity

Abstract

This study aims to investigate the impact of sticky inventory management on credit ratings for all the three inventory components (raw materials, work-in-process, and finished goods). Taking a group of listed manufacturing firms in China from 2011 to 2019, we employed the ordered probit regression model combined with the moderation model to examine the relationship between three inventory component stickiness and credit ratings from two dimensions: environmental dynamism and complexity. We find an inverted U-shaped effect of raw material inventory stickiness and work-in-process inventory stickiness on corporate credit ratings, while sticky inventory management of finished goods exerts a positive association with credit ratings. Further moderation analysis suggests that environmental dynamism positively moderates the impact of sticky inventory management of raw materials and finished goods on credit ratings, but negatively moderates the relationship between work-in-process inventory stickiness and credit ratings. In addition, the impact of sticky inventory management of work-in-process and finished goods on credit ratings is positively moderated by environmental complexity. The results of this study provide a more detailed picture regarding the ratings agencies’ perceptions of inventory stickiness.