Supply chain network and information sharing effects of SMEs’ credit quality on firm performance

Abstract

PurposeThe purpose of this paper is to examine how a supply chain (SC) network helps small and medium enterprises (SMEs) to obtain liquidity and working capital for enhancing their performance while developing the relationships among SC members through information sharing. Moreover, this study also investigates whether a strong tie or bridge tie improves the availability of SMEs’ credit and performance.Design/methodology/approachUsing a survey approach, data were collected from textile SMEs, located in Pakistan. Structural equation modeling and hierarchical regression model were run to validate the proposed model and the relationships.FindingsFindings highlighted that strong tie and bridge tie of SMEs positively and significantly enhance the credit quality and SMEs’ performance. Furthermore, information sharing significantly moderates the relationship between SC network ties and SMEs’ credit quality. Credit quality significantly explains the indirect (mediation) association between the strong tie and the firm performance.Practical implicationsThis study will help the SMEs’ entrepreneurs and SC executives to strengthen the liquidity position of SME and improve SMEs’ performance by developing the bridge ties. SMEs should share more information in their SC network while performing business transactions so that financers or lenders can easily access their operational capabilities and individual characteristics to offer them quality credit such as supply chain finance (SCF).Originality/valueSMEs always face the issue of risk-free financing which adversely affects the firm performance. This study covered the hidden gap in SCM and SMEs’ financing literature by identifying the crucial role of SCF as quality credit in the development of SMEs. Moreover, SMEs can get benefits (e.g. quality credit=SCF) for better embedding in an SC network through information sharing.