Examining blockchain's role in supply chain finance structure and governance

Abstract

Can innovative technologies address the challenge of information asymmetry that has long plagued the financial services industry? This study investigates a three-tier supply chain model, consisting of a core buyer firm, suppliers, and sub-suppliers. It explores the impact of blockchain-enabled financing (BF) on the supply chain finance's structure and governance. Utilizing a circular city model, this study examines the number of suppliers and sub-supplier selection between BF and advance payment supply chain finance policies. BF provides significant benefits, including enhanced security, reduced fraud risk, and the use of smart contracts, which together facilitate secure, verifiable, and efficient real-time information exchange. These advantages reduce information asymmetry and verification costs, leading to more efficient supply chain operations, especially in a principal-agent scenario where the core firm delegates financial responsibilities to suppliers. The study finds BF reduces disruptions due to sub-supplier moral hazard and improves buyer firm and sub-supplier interests. It does not benefit intermediary suppliers. Additionally, a decrease in BF information verification costs allows the buyer firm to contract with fewer suppliers, leading to varied impacts on the profitability of supply chain members and significant implications for overall supply chain structure and governance.