Vertical Integration as a Driver of Investment Efficiency: Evidence from China’s Food and Beverage Sector

Abstract

Vertical integration is widely used in China’s food and beverage sector to secure supply and quality control, yet evidence on its financial benefits remains mixed and the mechanisms linking integration to stock-market outcomes are underexplored. Using a 15-year panel of 50 Chinese listed food and beverage firms (2008–2022; 750 firm-year observations), this study examines whether vertical integration affects stock yield directly and indirectly through firms’ investment behaviour. Employing firm and year fixed effects and mediation analysis, we find that higher vertical integration is associated with greater investment intensity, and that investment intensity is positively related to stock yield. Once the investment channel is accounted for, the direct effect of vertical integration on stock yield becomes statistically insignificant, suggesting that the stock-market relevance of integration primarily operates through investment. These results refine Transaction Cost Economics and the Resource-Based View by showing that integration creates shareholder value not automatically, but when translated into disciplined capital allocation in a regulation-intensive, perishable-goods industry. The study offers a mechanism based empirical framework for evaluating integration strategies in emerging-market settings.