Alleviating Financing Constraints of SMEs through Supply Chain

Yang Yang, Xuezheng Chen, Jing Gu and Hamido Fujita
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Yang Yang: School of Economic Mathematics, Southwestern University of Finance and Economics, No. 555 Liutai Avenue, Wenjiang District, Chengdu 611130, China
Xuezheng Chen: School of Economics, Jiangxi University of Finance and Economics, No. 169 East Shuanggang Avenue, Nanchang 330013, China
Jing Gu: School of Economics, Sichuan University, No. 24 South Section 1 Yihuan Road, Chengdu 610064, China
Hamido Fujita: Faculty of Software and Information Science, Iwate Prefectural University, Iwate 020-0193, Japan

Sustainability, 2019, vol. 11, issue 3, 1-19

Abstract: Small and medium-sized enterprises play a crucial role in sustaining economic development in both developed economies and developing economies, however, many of them suffer from chronic and structural difficulties in accessing external financing. In this paper, we develop a theoretical framework to illustrate how information structures work in the strategic interactions between banks and firms in a supply chain, and why the transaction information in a supply chain may serve to reduce information asymmetry and improve SMEs’ access to external financing. We find that under incomplete information, the transactions between SMEs and suppliers can serve as signals for banks, which may help banks access the private information of SMEs, thus reducing information asymmetry between them. To maximize profit, banks should dynamically adjust both their interest rate policies and risk management strategies when providing financing services to SMEs, according to the structure of the financial market. The improvement of the external financial environment for SMEs may benefit the entire supply chain, thus facilitating its sustainable development and the growth of SMEs. Our framework sheds light on how SMEs in a supply chain may enhance their survivability and facilitate their development through appropriate strategies to improve business performances and manage credit risks.

Keywords: SMEs; financing constraints; supply chain; information asymmetry (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:3:p:673-:d:201292

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