The Implications of Firm-Specific Policy Risk, Policy Uncertainty, and Industry Factors for Inventory: A Resource Dependence Perspective

Abstract

The risk created by government policymaking can be daunting, but little is known about the extent to which this risk is disruptive to business in general and to supply chain operations in particular. Because government is a powerful and omnipresent entity, scholars and executives alike could benefit from greater understanding of how firms react to risk emanating from the policymaking process. To help address this gap, we use resource dependence theory to develop hypotheses concerning the accumulation of inventory by firms to buffer against their exposure to potential policy changes and how such a link might be moderated by macro-level and industry-level factors. Data from 19,634 firm-year observations reveal that firms accumulate more inventory as a buffer against policy risk under conditions of high policy uncertainty and high industry dynamism. Overall, our findings support the predictions of resource dependence theory and refine understanding of supply chain responses to macro-level uncertainty by demonstrating the contingent influence of government policy. In doing so, our study provides a foundation for future research to explore the intersections between government actions and supply chain activities and offers insights for managers and policymakers about how to factor government into their decision calculi.