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Benefits of the implementation of Supply Chain Financez,1

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Abstract

Supply Chain Finance (SCF), an important way of integrating industry and finance that has emerged in recent decades, has attracted the interest of both industry and academia. A large number of conceptual studies on SCF support the theory that SCF benefits supply chains by alleviating financing problems and maintaining stability. The focal firms which are the main SCF practices provider help alleviating the financing problem of their partners by weakening part of the working capital management. However, SCF-oriented practice on the focal firm and traditional corporate finance theory which earing profit by improving working capital management are not aligned. This paper attempts to provide empirical evidence to explain this phenomenon on the SCF-oriented perspective. Secondary panel data analysis is employed. The impact of focal firms providing SCF services is used to represent SCF practices in the supply chain since focal firms dominate SCF activities. Cash Conversion Cycle (time perspective), trade credit and prepayment (volume perspective) of the focal firms are independent variables of the analysis. Three type of performances, financial, risk and operations, are dependent variables of the analysis. This study found that a focal firm providing SCF can conditionally improve their firm’s financial performance, risk levels and operations management. Results from different industrial analyses suggest that tertiary industries are best suited to implementing SCF activities. Providing SCF also benefits the firm-level performance of state-owned enterprises. This is the first paper that comprehensively analyses the effects of SCF implementation with different firm characteristics from both a time perspective and a volume perspective.

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Notes

  1. In recent decades, the development of SCF has attracted the attention of the Chinese government, as can be seen in the “Opinions on further supporting the healthy development of small and micro enterprises”, “Made in China 2025”, and “Some opinions on financial support for stable growth of industry, structural adjustment and benefit increase”.

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Authors and Affiliations

  1. Nottingham University Business School China, University of Nottingham, Ningbo, China

    Qifan Pei, Hing Kai Chan & Tiantian Zhang

  2. University of Liverpool Management School, University of Liverpool, Liverpool, UK

    Yan Li

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z,1 An early version of this paper was submitted to the FinTech & Shadow Banking in China 2019 Conference (Pei et al. 2019a). This is the extended version that empirically evaluates the benefits of providing SCF for firm performance. In addition, the detailed performance resulting from implementing SCF with respect to the time perspective (Pei, et al., 2019b) has been presented at the APIEMS conference.

Appendix

Appendix

Variables Definitions and Calculations.

Current ratio

Current ratio is liquidity and efficiency ratio that measures a company’s financial health by determining if it has ability to pay short-term obligations. Current ratio is calculated as a company’s current assets to its current liabilities.

\( Current\,ratio = \frac{{Current\,Assets}}{{Current\,Liabilities}}\)

Altman Z-Score

The Z-Score formula (Altman, 1968) is used for predicting bankruptcy within two years. The Z-Score formula uses multiple accounting ratios, such as liquid assets, earning power, operating efficiency, leverage and total asset turnover, to measure the financial health of a firm. A higher Z-Score reflects a safer enterprise.

\( ZScore = 1.2*\frac{{working\,capital}}{{total\,assets}} + 1.4*\frac{{retained\,earning}}{{total\,assets}} + 3.3*\frac{{EBIT}}{{total\,assets}} + 0.6*\frac{{market\,value\,of\,equity}}{{book\,value\,of\,total\,liabilities}} + 0.999*\frac{{sales}}{{total\,assets}}\)

ROA

Return on Assets (ROA) measures how efficient a company’s management is in generating earnings from their economic resources or assets. ROA is a widely used metric in operations management.

\( ROA=\frac{Total Profit+Financial Expenses }{Average Total Assets }\)

Where

\( Average Total Assets=\frac{Begainning Total Assets+ Ending Total Assets }{2}\)

SCF

Total volume of the supply chain finance solutions including trade credit and prepayments.

\( SCF=trade credit+prepayment\)

Size

The logarithm of the total assets of the firm

Age

The firm age calculated using its first establishment date on CSMAR to 2017.

Sales Growth Rate

The firm’s total sales growth.

Leverage

The ratio of the total amount of debt relative to total assets

\( Leverage= \frac{short term debt+long term debt}{total assets}\)

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Pei, Q., Chan, H., Zhang, T. et al. Benefits of the implementation of Supply Chain Financez,1. Ann Oper Res 331, 251–283 (2023). https://doi.org/10.1007/s10479-022-04566-x

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