Global Supply Chains and Cross-Border Financing

42 Pages Posted: 30 Nov 2018 Last revised: 13 Dec 2019

See all articles by Michael G. Hertzel

Michael G. Hertzel

Arizona State University (ASU) - Finance Department

Jie Peng

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Jing Wu

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Yu Zhang

Peking University - Guanghua School of Management

Date Written: November 18, 2018

Abstract

This paper provides evidence that the formation of global supply chain partnerships predicts significant increases, relative to otherwise similar firms, in cross-border financing. Our findings are detected in all three major financing markets - equities, syndicated loans, and public debt - as well as for cross-border capital flows in M&A deals. Our findings are robust to controls for standard firm-level determinants, industry- and country-specific shocks, and endogeneity concerns. We propose that our findings reflect an informational channel whereby firms are able to overcome informational obstacles to cross-border financing by integrating into the global supply chain network. In effect, because of the associated due diligence, a new global supply chain partnership can serve to reduce information asymmetry and provide favorable information regarding a firm’s products and operations, as well as its financial health. We provide evidence consistent with an informational channel using a battery of cross-sectional heterogeneity tests, including tests that individually consider firm-level measures of visibility, supply-chain disclosure decisions, cross-country differences in informational environments, and differential effects for suppliers versus customers. Our findings have important implications for firms attempting to identify supply-chain partners, and particularly for decisions on integrating into the global supply-chain network. More broadly, our findings suggest that the information generated by operational activities can have important effects on subsequent financing activities, which contributes to the academic literature at the interface of operations and finance.

Keywords: global supply chains, cross-border financing, product market, financial market

JEL Classification: L14, G15, G30, G32

Suggested Citation

Hertzel, Michael G. and Peng, Jie and Wu, Jing and Zhang, Yu, Global Supply Chains and Cross-Border Financing (November 18, 2018). Available at SSRN: https://ssrn.com/abstract=3289212 or http://dx.doi.org/10.2139/ssrn.3289212

Michael G. Hertzel

Arizona State University (ASU) - Finance Department ( email )

W. P. Carey School of Business
P.O. Box 873906
Tempe, AZ 85287-3906
United States
480-965-6869 (Phone)
602-965-8539 (Fax)

Jie Peng

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building, 12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Jing Wu (Contact Author)

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

Yu Zhang

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

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