How can banks and finance companies incorporate value chain factors in their risk management strategy? The case of agro‐food firms

Abstract

A value chain framework for guiding the financial firms in their credit decisions is urgent, as the current COVID-19 pandemic has highlighted, but missing in the extant literature, particularly for those that lend to industries sensitive to value and supply chain bottlenecks. This study creates knowledge in value chain finance, a big untapped and un-researched market. It constructs, confirms, and validates a value chain framework for assessing risks in lending to Agro and Food Processing firms in which value chain risks are major business concerns globally. To pursue the objectives of the study, we use a novel methodology that integrates the Modified Delphi technique, exploratory factor analysis, confirmatory factor analysis, and discriminant analysis. Based on testing and analysis of primary data, including loan data, a framework comprising six factors is proposed for use in conjunction with existing risk assessment models of finance companies to improve the quality of their credit decisions, contributing to their performance sustainability.agro-food, bankruptcy, default risk, risk management, supply chain financing, value chain | INTRODUCTIONIncreasing modernization is causing higher integration and interdependence among firms across the value chain. Technology has connected value chains globally, providing new opportunities for small companies and market players from developing countries and emerging-market economies to partake in the world economy as they are now not required to hold expertise in all the stages of production and distribution (OECD, 2021). Technology-enabled changes over the last many years have also magnified the swiftness and size of disruptions in an unprecedented manner, which conjoined with increasing trends of globalization, urbanization, environmental performance concerns, and shifting demographics are amplifying and intensifying uncertainty in the marketplace (Lee & Trimi, 2021). The outbreak of the COVID-19 pandemic in the year 2020 is estimated to have caused combined revenue losses of up to $4 trillion in U.S. and European firms from supply chain disruptions (Mitchell, 2021). It has highlighted and advanced the need for firms to bring changes in their traditional business models for sustaining performance in periods of crisis (Breier et al., 2021;Khan et al., 2021). Sixty-four percent of U.S. and European firms had revenue losses between 6% and 20% in 2020, along with severe damage to their brand value (Mitchell, 2021). Although the COVID-19 in present times is a significant disruptor responsible for straining and breaking the value chains, it is only one among other disruptive forces such as cyberattacks, diverging regulations, and instability in commodity prices (Clark, 2021). Companies across industries can expect significant financial loss causing value chain disruptions every 3.7 years

Sustainable Performance Model and Strategy: A Conceptual Framework

“…The imperatives of deploying improvements for sustained progress, as brought to the forefront by Wasan et al, (2023), illuminates the necessity of continuous and systematic enhancement to underpin sustainable performance. Acosta-Prado & Tafur-Mendoza (2022) investigation into the interplay between Total Quality Management (TQM) practices and organizational performance underscores the pivotal roles of co-workers and organizational support in shaping this relationship.…”