Inventory Management and Board Characteristics: Moderating Role of Industry Level Competition and Firm Life Cycle

Inventory represents one of the most important and complex assets to be managed at firm level as well as at macro economy level. Separation of ownership and management in new firms has led to different arguments regarding the relationship between the owner and the agent. Jensen and Meckling (1976) articulated this scenario as an agency relationship and argued that the agent (i.e., executive managers) will be a self-interest optimizer. Therefore, internal and external monitoring mechanisms are required to be executed to diminish disagreement in interests. The purpose of this study is investigating the relationship between board characteristics, industry level competition, firm life cycle and inventory management. The sample of this study, includes 155 companies listed in the Tehran Stock Exchange during the period 1385-1392. For processing and testing hypotheses, Fixed Effects Model and Estimated Generalized Least Squares (EGLS) methodology are used. Results show that board size, board independence and industry level competition have positive and significant impact on the inventory management. Also we find that the inventory management varies over the life cycle of the firm. Using Dickinson’s life cycle measure we find that the inventory management is more optimal in the growth and mature stages and more non-optimal in the introduction, shake-out and decline stages. Also study results show that positive relationship between board independence and inventory management is stronger for firms in the introduction stages.