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

Abstract

AbstractA 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.