The impact of lean inventory management on ESG performance

Purpose This study investigates the nonlinear relationship between inventory leanness and ESG (environmental, social and governance) performance, exploring how market concentration and digital transformation moderate this connection in manufacturing enterprises. Design/methodology/approach Using a large panel data collected from Chinese listed manufacturing enterprises over the period from 2012 to 2021, this research employs the instrumental variable method combined with two-stage least squares estimators to explore the U-shaped relationship between inventory leanness and ESG performance. Furthermore, the moderating roles of market concentration and digital transformation are demonstrated. Findings The results reveal an inverted U-shaped relationship between inventory leanness and ESG performance, indicating that moderate lean inventory management enhances ESG outcomes, but excessive reduction hinders them. Additionally, market concentration and digital transformation positively moderate this relationship, suggesting that competitive market conditions and technological advancement mitigate the adverse effects of overly lean inventories. Practical implications Managers are advised to balance inventory management with market dynamics and embrace digital transformation to optimize ESG performance. Policymakers can leverage these insights to guide firms in sustainable inventory practices. Originality/value This study contributes to the literature by unveiling the nonlinear dynamics between inventory leanness and ESG performance and highlighting the moderating roles of market concentration and digital transformation.