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- Title
On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption.
- Authors
Chod, Jiri; Trichakis, Nikolaos; Tsoukalas, Gerry; Aspegren, Henry; Weber, Mark
- 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. This paper was accepted by Victor Martínez-de-Albéniz, operations management.
- Subjects
BLOCKCHAINS; SUPPLY chains; OPERATING costs; OPERATIONS management; BITCOIN
- Publication
Management Science, 2020, Vol 66, Issue 10, p4378
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2019.3434