On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption

Jiri Chod (), Nikolaos Trichakis (), Gerry Tsoukalas (), Henry Aspegren () and Mark Weber ()
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Jiri Chod: Carroll School of Management, Boston College, Chestnut Hill, Massachusetts 02467;
Nikolaos Trichakis: MIT Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142; Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139;
Gerry Tsoukalas: The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104;
Henry Aspegren: Google Inc., Mountain View, California 94043
Mark Weber: IBM Research, Cambridge, Massachusetts 02142; MIT-IBM Watson Artificial Intelligence Laboratory, Cambridge, Massachusetts 02142

Management Science, 2020, vol. 66, issue 10, 4378-4396

Abstract: We develop a theory that shows signaling a firm’s fundamental quality (e.g., its operational capabilities) to lenders through inventory transactions to be more efficient—it leads to less costly operational distortions—than signaling through loan requests, and we characterize how the efficiency gains depend on firm operational characteristics, such as operating costs, market size, and inventory salvage value. Signaling through inventory being only tenable when inventory transactions are verifiable at low enough cost, we then turn our attention to how this verifiability can be achieved in practice and argue that blockchain technology could enable it more efficiently than traditional monitoring mechanisms. To demonstrate, we develop b_verify, an open-source blockchain protocol that leverages Bitcoin to provide supply chain transparency at scale and in a cost-effective way. The paper identifies an important benefit of blockchain adoption—by opening a window of transparency into a firm’s supply chain, blockchain technology furnishes the ability to secure favorable financing terms at lower signaling costs. Furthermore, the analysis of the preferred signaling mode sheds light on what types of firms or supply chains would stand to benefit the most from this use of blockchain technology.

Keywords: blockchain; supply chain financing; supply chain transparency; information asymmetry; signaling (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (119)

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