Does Stakeholder Orientation Improve Firms’ Operations? Evidence from Inventory Management

We investigate whether and how firms’ holistic orientation toward their primary stakeholders affects a critical yet underexplored operational outcome: inventory efficiency. Drawing on the U.S. state legislatures’ staggered adoption of constituency statutes as a quasi-natural experiment, we demonstrate that an enhanced primary stakeholder orientation significantly improves manufacturing firms’ inventory efficiency. Further channel analysis reveals that stakeholder orientation increases inventory efficiency by shielding firms from the negative impact of supply chain uncertainty. Its effect is amplified for firms exposed to higher levels of uncertainty, and firms’ perceived supply chain risk exposure diminishes following the statutes’ adoption. Importantly, we provide evidence for the holistic nature of primary stakeholder orientation by showing that its positive impact on inventory efficiency is significantly moderated by the importance of customer, supplier, and employee relations, and that the efficiency gains are observed across all disaggregated inventory components. Finally, our mediation analysis suggests that improvements in inventory efficiency serve as an important channel through which stakeholder orientation enhances firm value: more than 15% of the increase in firm value subsequent to the statutes’ adoption can be attributed to enhanced inventory efficiency. Collectively, our results substantiate the important role of primary stakeholder orientation as a strategic posture that generates tangible operational benefits.