Supply chain finance, performance, and risk: How SMEs adjust their buyer-supplier relationship for competitiveness?

Supply chain finance (SCF) has attracted considerable attention as it is an innovative business model that allows firms, especially small and medium-sized enterprises (SMEs), to convert illiquid assets into cash without incurring additional liabilities, yet, its effects on SME performance and risk have been insufficiently studied. Since the competitiveness of SMEs depends on performance enhancement and risk mitigation, this paper firstly constructs a scaled decile rank transformation of account receivable turnover to gauge the degree to which a supplier implements SCF, thereby examining the relationship between SCF, performance, and risk. We collect data on 4,679 SMEs from the Chinese manufacturing sector. Thereafter, hierarchical linear regression, a complex form of multiple linear regression analysis, is employed to test the hypotheses. The results indicate that an SME’s SCF adoption has a positive impact on its performance but a negative impact on its risk. To further explore cross-sectional variability, the buyer-supplier relationship’s moderating role is investigated, and the results show that an increase in customer concentration strengthens both the positive effects of SCF on performance and the negative effects of SCF on risk. Overall, our study contributes to the literature on the interface of operations and finance in supply chains by exploring the multiple facets of SCF adoption as well as highlighting the moderating role of buyer-supplier relationship in SCF and SME competitiveness. Finally, we also provide managerial implications for SMEs and financial service providers by validating the value of SCF implementation and the buyer-supplier relationship management in forging competitive advantages.