This paper examines the financial consequences that inventory leanness has on firm performance. We conduct an econometric analysis using 4,324 publicly traded U.S. manufacturing companies for the period 1980-2008. Using an instrumental variable fixed effects estimator we find a nonlinear relationship between inventory leanness and financial performance. However, we note that the maximum point of this inverted Ushaped relationship often lies at the extreme end of the investigated samplesuggesting a decreasing return from leanness rather than an optimal level. We show that the strength of this relationship is highly dependent on both the industry and inventory component (raw materials, work in process and finished goods) studied. The main novelty and direct implication of our findings is that most firms still have much potential to increase profitability by becoming leaner and they are unlikely to cross a threshold where profitability decreases with increased leanness. We display how much the average firm could gain by becoming leaner and show how this sensitivity changes by inventory component and industry. Finally, we highlight several new econometric aspects that we believe must be addressed when empirically investigating the inventory-performance link.

In addition to internal R&D, external knowledge is widely considered as an essential lever for innovative performance. This paper analyzes knowledge spillovers in supply chain networks. Specifically, we investigate how supplier innovation is impacted by buyer innovation. Financial accounting data is combined with supply chain relationship data and patent data for U.S. firms in high tech industries. Our econometric analysis shows that buyer innovation has a positive and significant impact on supplier innovation. We find that the duration of the buyer-supplier relationship positively moderates this effect, but that the technological proximity between the two firms does not have a significant effect on spillovers.

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Reviewer 1 The paper has good findings and the idea is innovative. I think it is publishable after some do-able changes: