Publication: Corporate social responsibility and inventory policy
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2010-09
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Abstract
In this article, we study the impact of implementing corporate social responsible (CSR) practices on a
firm’s inventory policy. Our proposal is that there is an inverted U-shape relationship between firms’ CSR and
their inventory levels. Two elements explain such proposal. First, stakeholders have different interests
regarding the outcome of the inventory system. Specifically, we hypothesize that customers pressure
firms to increase inventories; employees have conflicting views regarding inventories and, for this
reason, they do not pressure firms in a particular direction; and environmental activists force firms to
reduce inventories. The second reason is that there is different level of stakeholder proactiveness
contingent on the intensity in the implementation of social responsible policies. In particular, we posit
that for low levels of CSR, customers are more relevant, while for larger levels other stakeholders gain
more importance.
We test this theoretical prediction by crossing two databases, COMPUSTAT, for financial data, and
KLD for data on social responsibility. Our final database contains data on 1881 different US companies for the
period 1996-2006. The results found conform to our theoretical prediction.
Our analysis will be helpful to strategic and tactical decision-making processes on inventory
management and will allow researchers to offer concrete advice on the likely outcomes of various stakeholder
relationship practices in order to improve the effectiveness of inventory systems. Additionally, the connection
between CSR and inventory policies has interest at a macroeconomic level given that, on the one hand, there is a
growing tendency for firms to behave in a socially responsible way. On the other, inventories are responsible for
up to 87% of the total peak-to-trough movement in GDP. Thus, our results suggest that this tendency to
incorporate the social dimension in firms’ strategy should smooth out the overall economic cycle given that
firms apply more intensive CSR policies in the expansive periods (decreasing inventories) rather than during the
downturns (increasing inventories).
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Corporate social responsibility, Stakeholders, Inventories