On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption

Management Science, Forthcoming.

67 Pages Posted: 6 Dec 2017 Last revised: 3 Jul 2019

See all articles by Jiri Chod

Jiri Chod

Boston College

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT)

Gerry Tsoukalas

University of Pennsylvania - The Wharton School

Henry Aspegren

Digital Currency Initiative

Mark Weber

MIT-IBM Watson AI Lab

Date Written: July 1, 2019

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, Entrepreneurship

Suggested Citation

Chod, Jiri and Trichakis, Nikolaos and Tsoukalas, Gerry and Aspegren, Henry and Weber, Mark, On the Financing Benefits of Supply Chain Transparency and Blockchain Adoption (July 1, 2019). Management Science, Forthcoming.. Available at SSRN: https://ssrn.com/abstract=3078945 or http://dx.doi.org/10.2139/ssrn.3078945

Jiri Chod

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Nikolaos Trichakis

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Gerry Tsoukalas (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Henry Aspegren

Digital Currency Initiative ( email )

20 Ames St.
Cambridge, MA 02139-4307
United States

Mark Weber

MIT-IBM Watson AI Lab ( email )

Cambridge, MA MA 02139-4307
United States

HOME PAGE: http://www.markrweber.com

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