Global Supply Chains and Cross-Border Financing

Abstract

This paper provides evidence that the formation of global supply chain partnerships increases access to cross-border financing. The findings are detected in all three major financing markets - equities, syndicated loans, and public debt. Difference-in-differences test allows us to draw causal inferences from our results. We propose that our findings reflect the factor of informational visibility where less visible firms can overcome informational obstacles to cross-border financing by establishing global supply chains. Specifically, we provide evidence that firms that are small, held less by institutional investors, and followed by fewer analysts have more benefits in cross-border financing from the formation of the global supply chain. Firms that established cross-border financing after global supply chains experience increased sales and profitability but at the expense of lower operational efficiencies. Our findings have important implications for firms attempting to integrate into the global supply-chain network. More broadly, our findings suggest that the information generated by operational activities can have significant effects on subsequent financing activities.

Keywords: global supply chains, cross-border financing, informational visibility

JEL Classification: L14, G15, G30, G32