How do supply chain network and SMEs’ operational capabilities enhance working capital financing? An integrative signaling view

Abstract

The problem of SME financing has always been a hot topic in both practical and academic fields. SMEs' financing difficulties stem from information asymmetry between lenders and borrowers. Nevertheless, a new development trend in business is that traditional lending appears to be giving way to supply chain finance, which greatly reduces information asymmetry and increases the possibility for SMEs to raise working capital. Drawing upon an integrative signaling view, this study identifies key factors that enable the information symmetry between SMEs and financial service providers (FSPs) and increase their financing performance in a business-to-business context by using multiple case studies based on qualitative data and social network (UCINET) analysis. It is found that SMEs with specific operational capabilities and the necessary level of network embeddedness will overcome the difficulty of information asymmetry by initially showing uncontrolled signals to FSPs in order to make themselves stand out from other unqualified firms. Moreover, FSPs will compensate for SMEs' deficiencies in both structural and relational embeddedness. The interaction of both SMEs’ operational capabilities and network embeddedness will jointly improve the availability of SME working capital.