ABSTRACT Responding to unexpected operational disruptions is a major challenge for many firms. We examine whether firms stockpile inventory in response to exposure to operational disruption uncertainty induced by COVID-19 lockdowns. We find that firms that have been more significantly affected by lockdowns experience a greater increase in their inventory holdings. We further find that supply risk, logistics dependence, and customer retention concerns amplify post-lockdown inventory increases, whereas operational flexibility attenuates them, suggesting that COVID-19 lockdowns increase the expected disruption risk and thereby induce firms to increase inventory holdings. We also find that post-lockdown inventory stockpiling leads to higher inventory write-downs and worse operating performance. Our findings are unlikely to be driven by demand declines or stockout costs. Data Availability: Data are available from the public sources cited in the paper. JEL Classifications: G31; M41; M40.
Hou et al. (Fri,) studied this question.