How does reverse factoring affect operating performance? An event study of Chinese manufacturing firms

Abstract

PurposeAs a popular supply chain finance (SCF) strategy, reverse factoring has been widely adopted by buyer firms. However, the extant literature provides scant empirical evidence on the performance effect of reverse factoring. The purpose of this study is to seek to narrow this gap by empirically examining the relationship between reverse factoring and operating performance and the contingency conditions of this relationship.Design/methodology/approachBased on a sample of 167 announcements of reverse factoring implementation made by publicly listed Chinese manufacturing firms between 2014 and 2018, this paper employs a long-term event study approach to analyze the operating performance effect of reverse factoring as well as the moderating effects of production and innovation capabilities.FindingsThe event study results indicate that reverse factoring has a positive effect on buyer firms' operating performance in terms of cost efficiency and operating margin. In addition, both production and innovation capabilities positively moderate the relationship between reverse factoring and operating margin. However, neither of them moderates the relationship between reverse factoring and cost efficiency.Originality/valueThis is the first study that empirically examines the impact of reverse factoring on operating performance based on secondary data. Furthermore, it sheds light on the SCF literature by providing insights into the contingency effects of production and innovation capabilities, which also extends our understanding of the application of extended resource-based view in SCF research.

Recent contributions to supply chain finance: towards a theoretical and practical research agenda

“…They demonstrated that SCF can effectively mitigate the risks contained within a supply chain and can generate a positive effect on a firm's performance, which has been already proven in early modelling works (e.g., Sokolinskiy et al (2018); Yang and Birge, 2018). Furthermore, Shou et al (2021) investigated the relationship between RF and operating performance and the related contingency conditions embedded in this relationship based on a sample of 167 Chinese companies who claimed to have implemented RF to finance suppliers. Shou et al (2021) discovered that RF positively affects the firms' operating margin and cost-efficiency.…”

“…Furthermore, Shou et al (2021) investigated the relationship between RF and operating performance and the related contingency conditions embedded in this relationship based on a sample of 167 Chinese companies who claimed to have implemented RF to finance suppliers. Shou et al (2021) discovered that RF positively affects the firms' operating margin and cost-efficiency. Again, these results match with the early theoretical conclusions (e.g., Liebl et al (2016); Kouvelis and Xu, 2021).…”

Sustainable supply chain finance adoption and firm performance: Is green supply chain integration a missing link?

“…The trade credit enables firms pay in advance its liabilities to suppliers who devote to green manufacturing (Parida et al, 2021; Vliet et al, 2015), which promotes their confidence in participating such sustainable activity. In this case, the establishment of collaborative relationship with suppliers becomes more easily, which ultimately nurtures a solid GSI (Shou et al, 2021). Moreover, the application of SCF in the field of sustainability arouses the environmental awareness of suppliers.…”

The relational focus of small and medium sized actors' understandings of supply chain finance (SCF)

“…Although some prior research has pointed to the reluctance of suppliers to adopt SCF (Wuttke et al, 2016(Wuttke et al, , 2019, the literature has primarily focused on the large, focal firm perspective, placing less emphasis on their supply chain partners (e.g. Wuttke et al, 2013b;Caniato et al, 2016;Guida et al, 2021;Shou et al, 2021), especially on SMEs. Yet the apparent reluctance to adopt SCF on the part of suppliers is also important to focal firms as the successful implementation of SCF is determined by the degree of participation and frequency of transactions with suppliers and distributors (Dunn, 2011;Hofmann and Zumsteg, 2015).…”