This dissertation investigates how globalization affects inventory and financial performance from both firm and industry perspectives. Drawing upon elements from classic inventory models, transaction costs, geographic economics, and international business and strategy literatures, this dissertation aims to contribute to the construction of a theory of global supply chain management through an empirical testing of hypotheses on the effects of global sourcing, exports and manufacturing offshoring (i.e., foreign subsidiaries) on inventory performance and financial performance, using data from multinational firms and U.S. manufacturing industries.

Motivated by the lack of empirical research on inventory management in a global context, and an uncertain relationship between globalization and financial performance reported in the international business and strategy literature, the first essay examines how globalization affects firm financial performance directly and indirectly through inventory management. Globalization is further examined by a two-dimensional measure: global intensity and extensity. Due to increased uncertainties associated with global supply chains, globalization may significantly increase firm inventory levels. Even though manufacturing offshoring may benefit multinational firms through economies of scale and geographic diversification, escalating transaction costs and shrinking arbitrage opportunities may overwhelm benefits and lead to reduced financial performance. This direct-indirect effect model is tested using a large panel dataset of thousands of multinational firms over 1987-2007, collected from the COMPUSTAT global and segment databases. Essay 1 contributes to the supply chain management literature by providing a two-dimensional measure of globalization: foreign market penetration (<italic>depth<italic>) and geographic expansion (<italic>breadth<italic>), and may enhance our understanding of global supply chains.

The second essay analyzes the impact of global inbound and outbound supply chains on inventory performance within the U.S. economy. This research argues that global activity (i.e., global sourcing and exports) has offsetting effects on domestic inventory levels: an increasing impact due to risk considerations and a decreasing impact due to cost pressure from rising inventory costs. According to location theory, rooted in geographic economics, and "new trade theory" on intra-firm trade, firms may be able to efficiently allocate inventories to low cost regions along their global supply chains. To the extent that allocative efficiency may only be realized once a certain level of global activity is reached, it is hypothesized that the impact of international trade on domestic inventory is inverted-U shaped. i.e., as globalization increases, inventory levels first increase due to the longer and more complex supply chains, then decrease as firms determine how to more efficiently allocate their inventory across borders. The hypotheses are tested using inventories at all three stages (raw materials, finished goods and work-in-process inventory) and industry operating data from U.S. manufacturers over the period 1997-2005. Regression results indicate a strong invert-U shaped relationships existing between <italic>import intensity <italic>(measured by imported raw materials as a percentage of industry total cost of materials) and raw materials inventory in days of supply, and between <italic>export intensity <italic>(measured by exported finished goods as a percentage of total value of industry shipments) and finished goods inventory in days of supply. Essay 2 makes two contributions: theoretically, it is the first effort to connect international trade with inventory performance; empirically, results based on all U.S. manufacturers over a recent nine-year period may provide a benchmark for management when designing global inventory strategy.

In summary, this dissertation comprehensively investigates the impact of global supply chains on inventory performance and financial performance in the context of multinational firms and U.S. domestic manufacturers and hence is expected to enhance our understanding of global supply chain management theory and practices.