The impact of financial institutions on exchanges in the agricultural commodity supply chain: An information economics perspective

Abstract

Recent advances in supply chain research point to the vital but often overlooked role of financial institutions, such as banks and financial markets, in the execution of supply chain activities. We extend this incipient research stream by drawing on information economics and Penrose's resource-based view of the firm to theorize about how financial markets act as a source of information and influence exchange activities in the agricultural commodity supply chain. We test our hypotheses in the U.S. agricultural commodities context, specifically the U.S. rice industry, using a novel data set that combines financial market data with proprietary data on exchanges between farmers and customers. Time series econometric analyses reveal that information from financial markets influences exchanges between farmers and customers, but it has asymmetric effects depending on exchange dynamics and local market conditions. Overall, our analyses support our hypotheses and advance supply chain research by building theory about market-based exchange dynamics and by broadening the scope of mechanisms through which financial institutions impact exchange activities. For practice, we offer quantitative insights that can be leveraged by farmers and purchasing managers. For policymakers, we offer timely guidance related to the provision of information and the 'real' implications of financial markets.

When the chickens come home to roost: The short‐ versus long‐term performance implications of government contracting and supplier network structure

“…Our research also has meaningful implications for managerial decision‐making. First , the results broaden our understanding of firm performance by exploring the government as a buyer (Darby et al, 2022). Specifically, our results provide evidence of the consequences of contracting with the government because the financial impact of government contracting is different in the short‐term versus long‐term.…”

Unobserved variables in archival research: Achieving both theoretical and statistical identification

“…Our review of the literature suggests a few common features of theoretical identification using mechanism-based explanations, and we use a recent Journal of Business Logistics article from Darby et al (2022) to provide context for these features. The Darby study sources archival data to examine how information from financial institutions has both symmetric and asymmetric effects on exchanges between farmers and customers in agricultural supply chains.…”

“…We want to highlight four elements from the Darby et al (2022) article that add to the credibility of the unobserved processes that they claim are operating and explain the hypothesized relationships. We offer a summary of these four characteristics in Table 1.…”

“…One approach that can be especially impactful is collecting primary data from individuals who are embedded in the context and actively engage in the unobserved processes. Darby et al (2022) demonstrates this through extensive interviews with farmers and customers who were engaged in the exchange process. As is common in mixed approaches, their research strategy created a much deeper understanding and allowed the authors to offer a clear and compelling rationale towards explaining the hypothesized relationships.…”

What about policy research?

“…Next, in “The impact of financial institutions on exchanges in the agricultural commodity supply chain: An information economics perspective,” Darby et al (2022) use time series analytics to examine the role financial institutions play in the execution of supply chain activities … all the way down to the farm. The authors examine how financial markets function as a source of both information and influence of exchange activities in the agricultural commodity supply chain.…”