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

PurposeRisks 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...

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Bibliographic Details
Published in:Journal of enterprise information management 2021-11, Vol.34 (5), p.1429-1451
Main Authors: Liu, Lixin, Zhang, Justin Zuopeng, He, Wu, Li, Wenzhuo
Format: Article
Language:English
Subjects:
Asymmetry
Banks
Blockchain
Business competition
Cryptography
Data processing
Environment models
Finance
Financing
Fraud
Internet of Things
New technology
Supply chains
Warehouses
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Summary:PurposeRisks 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/approachThe 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.FindingsFrom 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/valueThe 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.
ISSN:1741-0398
1758-7409
DOI:10.1108/JEIM-12-2020-0510