The relationship between inventory leanness and product innovation with the contingent role of market concentration

Purpose This study aims to demonstrate the simultaneous effects between inventory leanness and product innovation, with market concentration being a moderator. Design/methodology/approach Using a large panel data collected from 3071 listed manufacturing enterprises from 2004 to 2021, this research employs a simultaneous system of equations via the three-stage least square method to explore the simultaneous relationship between inventory leanness and product innovation. In addition, the moderating role of market concentration is demonstrated via one four-model system. Findings As its core, inventory leanness positively impacts product innovation, while product innovation negatively affects inventory leanness. Moreover, there are differential impacts of the leanness of three inventory types on product innovation. Specifically, the inventory leanness of raw material negatively affects product innovation, while the inventory leanness of work-in-process and finished goods positively affect product innovation. Further, moderation analysis highlights that market concentration is a key moderator of this relationship. Practical implications Managers should carefully gauge the tradeoffs between inventory leanness and product innovation. Concretely, managers ought to consider the connections between inventory types and product innovation. In addition, managers are suggested to emphasis on market strategy. Originality/value This paper not only contributes to the current understanding of inventory leanness by verifying the impact of inventory leanness on product innovation but also investigates the simultaneous relationship between various inventory types and product innovation. Furthermore, it empirically demonstrates the moderating effect of market concentration on the relationship between inventory leanness and product innovation.