On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption

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…

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  Inter-American Development Bank
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  Mack Institute for Innovation Management, Wharton School, University of Pennsylvania