Supply Chain Finance and Firm performance: The moderating role of Industry competition and Credit risk

This study investigates the impact of supply chain finance (SCF) on firm performance in Pakistan's non-financial sector, with a focus on the moderating roles of industry competition and credit risk. Leveraging panel data from 126 firms listed on the Pakistan Stock Exchange (2010-2023), by employing Ordinary Least Square (OLS) regression analysis to examine how SCF component Days Inventory Outstanding (DIO), Days Receivable Outstanding (DRO), and Days Payable Outstanding (DPO) that interact with industry concentration (Herfindahl Hirschman Index) and credit risk (Altman's Z-score) to influence key performance metrics: Return on Assets (ROA), Return on Equity (ROE), Tobin-Q, and Net Profit Margin (NPM). Results reveal that efficient inventory management (DIO) consistently enhances profitability and market valuation, while extended payables (DPO) negatively affect investor confidence, signaling liquidity risks. Industry competition amplifies the benefits of strategic inventory practices but diminishes the efficacy of payables strategies, underscoring the need for context specific SCF approaches. Credit risk moderates these relationships asymmetrically: high-risk firms benefit from optimized receivables but face amplified inefficiencies in concentrated markets. Notably, a three-way interaction between SCF, competition, and credit risk highlights that firms in highly competitive industries with low credit risk achieve optimal performance, while high-risk firms in concentrated sectors struggle. The study advances contingency theory by demonstrating that SCF's effectiveness hinges on alignment with market dynamics and financial health. Practical implications urge managers to prioritize inventory precision, cautiously manage payables, and tailor strategies to competitive and credit conditions. Policymakers are called to bolster financial ecosystems supporting SMEs and enhance SCF transparency. Limitations, including omitted macroeconomic variables and pandemic-induced structural shifts, suggest future research directions, such as cross-country comparisons and ESG-integrated SCF frameworks.