On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption
Name
SSRN-id3078945.pdf
Description
Accepted version
Size
1.19 MB
Format
Adobe PDF
Checksum (MD5)
ddd5faabd6db9768d858e98ee0000429
Author(s)
Chod, Jiri
Trichakis, Nikolaos
Tsoukalas, Gerry
Aspegren, Henry
Weber, Mark
Date Issued
May 2020
Journal
Management Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Chod, Jiri et al. “On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption.” Management Science 66, 10 (October 2020): 4378-4396. © 2020 INFORMS
Version
Author's final manuscript
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.
MIT Department
Sloan School of Management
Massachusetts Institute of Technology. Media Laboratory
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/MNSC.2019.3434
