IDEAS home Printed from https://ideas.repec.org/a/sae/ausman/v48y2023i2p408-435.html

Supply chain finance and firm diversification: Evidence from China

Author

Listed:
  • Lei Xu

    (UniSA Business, University of South Australia, Adelaide, SA, Australia)

  • Bin Li
  • Chen Ma
  • Jingyu Liu

Abstract

We establish a link between supply chain finance (SCF) and the diversification of core firms through a proprietary dataset of listed firms on the Shanghai and Shenzhen Stock Exchanges. Our findings suggest that SCF may significantly reduce diversification with a stronger impact on firms of lower supply chain concentration. Our exploration, from the perspectives of resource occupation, innovation incentive and market power improvement, suggests that SCF may allow the core firms to better focus on their major businesses. Further tests suggest that SCF may significantly reduce the diversification by private and non-manufacturing firms, and those of high executive shareholding. It may also lead to reduced agency costs and enhanced production efficiency with positive economic consequences. Our findings may have such policy implications that SCF may significantly serve the real economy and help sustain high-quality economic growth in the Asian Era. JEL Classification: G11, G32, O12

Suggested Citation

  • Lei Xu & Bin Li & Chen Ma & Jingyu Liu, 2023. "Supply chain finance and firm diversification: Evidence from China," Australian Journal of Management, Australian School of Business, vol. 48(2), pages 408-435, May.
    • Handle: RePEc:sae:ausman:v:48:y:2023:i:2:p:408-435
    DOI: 10.1177/03128962221075366
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/03128962221075366
    Download Restriction: no
    File URL: https://libkey.io/10.1177/03128962221075366?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. van der Vliet, Kasper & Reindorp, Matthew J. & Fransoo, Jan C., 2015. "The price of reverse factoring: Financing rates vs. payment delays," European Journal of Operational Research, Elsevier, vol. 242(3), pages 842-853.
    2. Holmstrom, Bengt, 1989. "Agency costs and innovation," Journal of Economic Behavior & Organization, Elsevier, vol. 12(3), pages 305-327, December.
    3. Modak, Nikunja Mohan & Kazemi, Nima & Cárdenas-Barrón, Leopoldo Eduardo, 2019. "Investigating structure of a two-echelon closed-loop supply chain using social work donation as a Corporate Social Responsibility practice," International Journal of Production Economics, Elsevier, vol. 207(C), pages 19-33.
    4. Dittmar, Amy & Mahrt-Smith, Jan & Servaes, Henri, 2003. "International Corporate Governance and Corporate Cash Holdings," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(1), pages 111-133, March.
    5. Daron Acemoglu & Asuman Ozdaglar & Alireza Tahbaz-Salehi, 2015. "Systemic Risk and Stability in Financial Networks," American Economic Review, American Economic Association, vol. 105(2), pages 564-608, February.
    6. Franklin Allen & Elena Carletti, 2013. "What Is Systemic Risk?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45, pages 121-127, August.
    7. Lewellen, Wilbur G, 1971. "A Pure Financial Rationale for the Conglomerate Merger," Journal of Finance, American Finance Association, vol. 26(2), pages 521-537, May.
    8. Xu, Xinhan & Chen, Xiangfeng & Jia, Fu & Brown, Steve & Gong, Yu & Xu, Yifan, 2018. "Supply chain finance: A systematic literature review and bibliometric analysis," International Journal of Production Economics, Elsevier, vol. 204(C), pages 160-173.
    9. Long Wu & Lei Xu, 2020. "Venture capital certification of small and medium‐sized enterprises towards banks: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(2), pages 1601-1633, June.
    10. Seung Ho Park & Yadong Luo, 2001. "Guanxi and organizational dynamics: organizational networking in Chinese firms," Strategic Management Journal, Wiley Blackwell, vol. 22(5), pages 455-477, May.
    11. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 32(6), pages 863-886, November.
    12. Jia, Fu & Blome, Constantin & Sun, Hui & Yang, Yang & Zhi, Bangdong, 2020. "Towards an integrated conceptual framework of supply chain finance: An information processing perspective," International Journal of Production Economics, Elsevier, vol. 219(C), pages 18-30.
    13. Esfahbodi, Ali & Zhang, Yufeng & Watson, Glyn, 2016. "Sustainable supply chain management in emerging economies: Trade-offs between environmental and cost performance," International Journal of Production Economics, Elsevier, vol. 181(PB), pages 350-366.
    14. Raghuram Rajan & Henri Servaes & Luigi Zingales, 2000. "The Cost of Diversity: The Diversification Discount and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(1), pages 35-80, February.
    15. James S. Ang & Rebel A. Cole & James Wuh Lin, 2000. "Agency Costs and Ownership Structure," Journal of Finance, American Finance Association, vol. 55(1), pages 81-106, February.
    16. Qiang Lin & Tao Zhang, 2020. "Trade credit in economic fluctuations and its impact on corporate performance: a panel data analysis from China," Applied Economics, Taylor & Francis Journals, vol. 52(1), pages 1-18, January.
    17. Hyun-Han Shin & René M. Stulz, 1998. "Are Internal capital Markets Efficient?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(2), pages 531-552.
    18. Cristina Gimenez & Vicenta Sierra, 2013. "Sustainable Supply Chains: Governance Mechanisms to Greening Suppliers," Journal of Business Ethics, Springer, vol. 116(1), pages 189-203, August.
    19. David S. Scharfstein & Jeremy C. Stein, 2000. "The Dark Side of Internal Capital Markets: Divisional Rent‐Seeking and Inefficient Investment," Journal of Finance, American Finance Association, vol. 55(6), pages 2537-2564, December.
    20. Itzkowitz, Jennifer, 2013. "Customers and cash: How relationships affect suppliers' cash holdings," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 159-180.
    21. Marco Fasan & Elise Soerger Zaro & Claudio Soerger Zaro & Barbara Porco & Riccardo Tiscini, 2021. "An empirical analysis: Did green supply chain management alleviate the effects of COVID‐19?," Business Strategy and the Environment, Wiley Blackwell, vol. 30(5), pages 2702-2712, July.
    22. George Baryannis & Sahar Validi & Samir Dani & Grigoris Antoniou, 2019. "Supply chain risk management and artificial intelligence: state of the art and future research directions," International Journal of Production Research, Taylor & Francis Journals, vol. 57(7), pages 2179-2202, April.
    23. Robert Grüter & David A. Wuttke, 2017. "Option matters: valuing reverse factoring," International Journal of Production Research, Taylor & Francis Journals, vol. 55(22), pages 6608-6623, November.
    24. Xu, Lei & Lin, Chien-Ting, 2007. "Can Chinese banks compete after accession to WTO?," Journal of Asian Economics, Elsevier, vol. 18(6), pages 883-903, December.
    25. Wuttke, David A. & Blome, Constantin & Sebastian Heese, H. & Protopappa-Sieke, Margarita, 2016. "Supply chain finance: Optimal introduction and adoption decisions," International Journal of Production Economics, Elsevier, vol. 178(C), pages 72-81.
    26. Ann Echols & Wenpin Tsai, 2005. "Niche and performance: the moderating role of network embeddedness," Strategic Management Journal, Wiley Blackwell, vol. 26(3), pages 219-238, March.
    27. Song, Hua & Yang, Xuan & Yu, Kangkang, 2020. "How do supply chain network and SMEs’ operational capabilities enhance working capital financing? An integrative signaling view," International Journal of Production Economics, Elsevier, vol. 220(C).
    28. Tor Jakob Klette, 1999. "Market Power, Scale Economies and Productivity: Estimates from a Panel of Establishment Data," Journal of Industrial Economics, Wiley Blackwell, vol. 47(4), pages 451-476, December.
    29. Shail Pandit & Charles E. Wasley & Tzachi Zach, 2011. "Information Externalities along the Supply Chain: The Economic Determinants of Suppliers’ Stock Price Reaction to Their Customers’ Earnings Announcements," Contemporary Accounting Research, John Wiley & Sons, vol. 28(4), pages 1304-1343, December.
    30. Wuttke, David A. & Blome, Constantin & Henke, Michael, 2013. "Focusing the financial flow of supply chains: An empirical investigation of financial supply chain management," International Journal of Production Economics, Elsevier, vol. 145(2), pages 773-789.
    31. Andreas Wieland, 2021. "Dancing the Supply Chain: Toward Transformative Supply Chain Management," Journal of Supply Chain Management, Institute for Supply Management, vol. 57(1), pages 58-73, January.
    32. Denis, David J & Denis, Diane K & Sarin, Atulya, 1997. "Agency Problems, Equity Ownership, and Corporate Diversification," Journal of Finance, American Finance Association, vol. 52(1), pages 135-160, March.
    33. WUTTKE, David A & BLOME, Constantin & HENKE, Michael, 2013. "Focusing the financial flow of supply chains: an empirical investigation of financial supply chain management," LIDAM Reprints CORE 2601, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    34. Prashant Kale & Harbir Singh & Howard Perlmutter, 2000. "Learning and protection of proprietary assets in strategic alliances: building relational capital," Strategic Management Journal, Wiley Blackwell, vol. 21(3), pages 217-237, March.
    35. Michael Lubatkin & Sayan Chatterjee, 1991. "The strategy‐shareholder value relationship: Testing temporal stability across market cycles," Strategic Management Journal, Wiley Blackwell, vol. 12(4), pages 251-270, May.
    36. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    37. Yu He & Lei Xu & Ron P. McIver, 2019. "How does political connection affect firm financial distress and resolution in China?," Applied Economics, Taylor & Francis Journals, vol. 51(26), pages 2770-2792, June.
    38. Franklin Allen & Elena Carletti, 2013. "What Is Systemic Risk?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s1), pages 121-127, August.
    39. Jarrad Harford, 1999. "Corporate Cash Reserves and Acquisitions," Journal of Finance, American Finance Association, vol. 54(6), pages 1969-1997, December.
    40. Lai, Guoming & Debo, Laurens G. & Sycara, Katia, 2009. "Sharing inventory risk in supply chain: The implication of financial constraint," Omega, Elsevier, vol. 37(4), pages 811-825, August.
    41. Levinthal, Daniel & March, James G., 1981. "A model of adaptive organizational search," Journal of Economic Behavior & Organization, Elsevier, vol. 2(4), pages 307-333, December.
    42. Frank Chen & Zvi Drezner & Jennifer K. Ryan & David Simchi-Levi, 2000. "Quantifying the Bullwhip Effect in a Simple Supply Chain: The Impact of Forecasting, Lead Times, and Information," Management Science, INFORMS, vol. 46(3), pages 436-443, March.
    43. Pan, Ailing & Xu, Lei & Li, Bin & Ling, Runze, 2020. "The impact of supply chain finance on firm cash holdings: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    44. Dennis C. Mueller, 1969. "A Theory of Conglomerate Mergers," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(4), pages 643-659.
    45. Daniel Z. Levin & Rob Cross, 2004. "The Strength of Weak Ties You Can Trust: The Mediating Role of Trust in Effective Knowledge Transfer," Management Science, INFORMS, vol. 50(11), pages 1477-1490, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Long Wu & Jing Zhang & Lei Xu, 2024. "Compensating balance and loan bargaining power in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 64(2), pages 1335-1359, June.
    2. Zhao, Haixia & Zhang, Hui, 2025. "Effect of marketing expenditures on supply chain finance: Moderating role of customer concentration," Finance Research Letters, Elsevier, vol. 75(C).
    3. Li, Chengyou & Li, Yuxin & Dong, Fang & Tan, Qingbin, 2025. "Research on the impact of supply chain finance on new quality productivity in private enterprises," Finance Research Letters, Elsevier, vol. 86(PB).
    4. Fan Wu & Kaifeng Duan, 2025. "Building Sustainable Financial Capacity: How Supply Chain Digitalization Facilitates Credit Access by Adjustment Capability," Sustainability, MDPI, vol. 17(20), pages 1-27, October.
    5. Yunting Feng & Xiaoping Zhao & Qinghua Zhu, 2023. "Sustainable supply chains in a turbulent world: Challenges and opportunities," Australian Journal of Management, Australian School of Business, vol. 48(2), pages 199-203, May.
    6. Zhijian Zhang & Zhenwu Chen & Miyu Wan & Shuai Qiu, 2025. "Choice of product quality in supply chain of live-streaming e-commerce under different power structures," Australian Journal of Management, Australian School of Business, vol. 50(1), pages 266-286, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ailing Pan & Lei Xu & Bin Li & Runze Ling & Luyan Zheng, 2023. "The impact of supply chain finance on firm capital structure adjustment: Evidence from China," Australian Journal of Management, Australian School of Business, vol. 48(2), pages 436-462, May.
    2. Ratri Parida & Manoj Kumar Dash & Anil Kumar & Edmundas Kazimieras Zavadskas & Sunil Luthra & Eyob Mulat‐weldemeskel, 2022. "Evolution of supply chain finance: A comprehensive review and proposed research directions with network clustering analysis," Sustainable Development, John Wiley & Sons, Ltd., vol. 30(5), pages 1343-1369, October.
    3. Pan, Ailing & Xu, Lei & Li, Bin & Ling, Runze, 2020. "The impact of supply chain finance on firm cash holdings: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 63(C).
    4. Bu, Jun & Chang, Yanfeng & Fei, Tianlun & Li, Xueying, 2025. "It is a marathon, not a sprint: The impact of supply chain finance on firms’ short-term debt for long-term investments," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    5. Anna Trunk & Hendrik Birkel, 2022. "No Resilience Without Partners: A Case Study on German Small and Medium-Sized Enterprises in the Context of COVID-19," Schmalenbach Journal of Business Research, Springer, vol. 74(4), pages 537-574, December.
    6. Chen Ma & Qian Liu & Ruiqing Cao & Zixuan Dai & Fei Guo, 2024. "Supply chain finance and firm strategic change: A firm life cycle perspective," Economics and Politics, Wiley Blackwell, vol. 36(3), pages 1604-1632, November.
    7. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    8. Li, Bin & Guo, Fei & Xu, Lei & Meng, Siqi, 2024. "Fintech business and corporate social responsibility practices," Emerging Markets Review, Elsevier, vol. 59(C).
    9. van Lelyveld, Iman & Knot, Klaas, 2009. "Do financial conglomerates create or destroy value? Evidence for the EU," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2312-2321, December.
    10. Wang, Yolanda Yulong, 2023. "Corporate diversification, investment efficiency and the business cycle11This work is supported by Shenzhen Humanities & Social Sciences Key Research Bases," Journal of Corporate Finance, Elsevier, vol. 78(C).
    11. Ekkayokkaya, Manapol & Paudyal, Krishna, 2015. "A trade-off in corporate diversification," Journal of Empirical Finance, Elsevier, vol. 34(C), pages 275-292.
    12. Siraj, Ibrahim & Hassan, M. Kabir & Maroney, Neal, 2020. "Product demand sensitivity and the corporate diversification discount," Journal of Financial Stability, Elsevier, vol. 48(C).
    13. Matsusaka, John G. & Nanda, Vikram, 2002. "Internal Capital Markets and Corporate Refocusing," Journal of Financial Intermediation, Elsevier, vol. 11(2), pages 176-211, April.
    14. Benkraiem, Ramzi & Lakhal, Faten & Zopounidis, Constantin, 2020. "International diversification and corporate cash holding behavior: What happens during economic downturns?," Journal of Economic Behavior & Organization, Elsevier, vol. 170(C), pages 362-371.
    15. Beatrice Marchi & Simone Zanoni & Mohamad Y. Jaber, 2020. "Improving Supply Chain Profit through Reverse Factoring: A New Multi-Suppliers Single-Vendor Joint Economic Lot Size Model," IJFS, MDPI, vol. 8(2), pages 1-16, April.
    16. Zhang, Wen & Yan, Shaoshan & Li, Jian & Tian, Xin & Yoshida, Taketoshi, 2022. "Credit risk prediction of SMEs in supply chain finance by fusing demographic and behavioral data," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 158(C).
    17. Liu, Bai & Ju, Tao & Chan, Hing Kai, 2022. "The diverse impact of heterogeneous customer characteristics on supply chain finance: Empirical evidence from Chinese factoring," International Journal of Production Economics, Elsevier, vol. 243(C).
    18. Anh Huu Nguyen & Thinh Gia Hoang & Vu Minh Ngo & Loan Quynh Thi Nguyen & Huan Huu Nguyen, 2023. "Sustainability-oriented supply chain finance in Vietnam: insights from multiple case studies," Operations Management Research, Springer, vol. 16(1), pages 259-279, March.
    19. Ahrends, Meike & Drobetz, Wolfgang & Puhan, Tatjana Xenia, 2018. "Cyclicality of growth opportunities and the value of cash holdings," Journal of Financial Stability, Elsevier, vol. 37(C), pages 74-96.
    20. Yolanda Yulong Wang, 2023. "Corporate diversification, investment efficiency and the business cycle," Post-Print hal-04005692, HAL.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:ausman:v:48:y:2023:i:2:p:408-435. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.agsm.edu.au .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.