“Cultural inventories”: How dimensions of national culture moderate the effect of demand unpredictability on firm-level inventories

Abstract

While national culture has been recognized as an important driver of business decisions, our understanding of its effects on firm-level inventories is limited. In this paper, we argue that the national culture dimensions of uncertainty avoidance and long-term orientation influence biases and behaviors that affect how managers make inventory decisions in light of demand unpredictability. These dimensions of national culture thereby explain variations in the strength of the demand unpredictability-inventory relationship at the firm level. Using a dataset of 9127 firm-year observations from 25 countries and 20 manufacturing industries between 2006 and 2019, we find that the positive effect of demand unpredictability on inventories is augmented in high uncertainty avoidance cultures and weakened in long-term oriented cultures. These results are consistent with the notion that demand unpredictability is differentially interpreted across national cultures, thus explaining variations in firms’ inventory levels beyond what can be predicted by traditional inventory theory models. Implications for future research and managerial practice are discussed.