Supply chain finance initiatives
Samenvatting ‘Finance and Firm Volatility: Evidence from Small
Business Lending in China’
The online trading platform Alibaba provides financial technology (FinTech) credit for
millions of micro, small, and medium enterprises (MSMEs). It thus gives them credit access.
We find that credit access significantly reduces firm sales volatility and that the effect is
stronger for firms with fewer alternative sources of financing. We further look at firm exit
probability and find that firms with access to FinTech credit are less likely to go bankrupt or
exit the business in the future. Additional channel tests reveal that firms with FinTech credit
invest more in advertising and product/sector diversification, particularly during business
downturns, which serves as effective mechanisms through which credit access reduces firm
volatility.
The probability that a loan is granted strongly depends on an arbitrary cut-off in a credit
score range: A credit score is a number from 300 to 850 that depicts a consumer’s
creditworthiness. The higher the score, the better a borrower looks to potential lenders.
A credit score is based on credit history: number of open accounts, total levels of debt,
repayment history, and other factors. Lenders use credit scores to evaluate the probability
that an individual will repay loans in a timely manner.
Some key takeaways:
Supply chain finance initiatives should help optimize the performance of the supply
chain as a whole
The schemes can drastically affect behavior of parties in the supply chain, and
consequently how they perform
Initiatives should therefore seek to address key financial and operational
challenges such as liquidity constraints and risk exposure of firms, particularly in the
presence of limited financing alternatives or during harsh macroeconomic
environments
Samenvatting ‘Finance and Firm Volatility: Evidence from Small
Business Lending in China’
The online trading platform Alibaba provides financial technology (FinTech) credit for
millions of micro, small, and medium enterprises (MSMEs). It thus gives them credit access.
We find that credit access significantly reduces firm sales volatility and that the effect is
stronger for firms with fewer alternative sources of financing. We further look at firm exit
probability and find that firms with access to FinTech credit are less likely to go bankrupt or
exit the business in the future. Additional channel tests reveal that firms with FinTech credit
invest more in advertising and product/sector diversification, particularly during business
downturns, which serves as effective mechanisms through which credit access reduces firm
volatility.
The probability that a loan is granted strongly depends on an arbitrary cut-off in a credit
score range: A credit score is a number from 300 to 850 that depicts a consumer’s
creditworthiness. The higher the score, the better a borrower looks to potential lenders.
A credit score is based on credit history: number of open accounts, total levels of debt,
repayment history, and other factors. Lenders use credit scores to evaluate the probability
that an individual will repay loans in a timely manner.
Some key takeaways:
Supply chain finance initiatives should help optimize the performance of the supply
chain as a whole
The schemes can drastically affect behavior of parties in the supply chain, and
consequently how they perform
Initiatives should therefore seek to address key financial and operational
challenges such as liquidity constraints and risk exposure of firms, particularly in the
presence of limited financing alternatives or during harsh macroeconomic
environments
