Mitigating information asymmetry in inventory pledge financing through the Internet of things and blockchain

Document Type

Article

Publication Date

11-9-2021

Abstract

Purpose: Risks resulted from asymmetric information have become crucial barriers for commercial banks to implement supply chain finance (SCF) – mainly the inventory pledge financing (IPF). At the same time, online financial service providers (OFSPs) are emerging as strong competitors in the SCF market. As a result, commercial banks need to update their traditional SCF business models and alleviate their over-dependence on OFSPs. Design/methodology/approach: The authors employ a multi-case-study method to investigate how the Internet of things (IoT) and blockchain technologies can be jointly leveraged to mitigate SCF risks. In-depth interviews were conducted to depict the business models and their novel ecosystem to reinforce traditional banks' ability in SCF services. Findings: From the perspective of information asymmetry, the authors categorize IPF risks into three groups based on the principal-agent theory: collateral, warehousing and liquidity risk. The findings suggest that IoT can primarily improve traditional banks' information acquisition ability, and blockchain can facilitate credible information transformation, enabling banks to acquire knowledge from collaterals. Besides, the e-platform in the new architecture increases banks' involvement in the supply chain and builds a fair network to curtail warehousing risks. The employment of smart contracts and collaborative mechanism ensure process and outcome control in mitigating liquidity risks. Originality/value: The research contributes to the literature by confirming the role of emerging technologies in reducing information asymmetry risks. Besides, the findings provide valuable insights for practitioners to promote effective practices and approaches in IPF.

Publication Title

Journal of Enterprise Information Management

Volume

34

Issue

5

First Page

1429

Last Page

1451

Digital Object Identifier (DOI)

10.1108/JEIM-12-2020-0510

ISSN

17410398

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