The Impact of Blockchain on the Credit Risk of Supply Chain Finance: A Tripartite Evolutionary Game Analysis

Abstract

In light of the reality that supply chain finance is plagued by credit risk, this study constructs a tripartite evolutionary game model involving financial institution, small and medium-sized enterprise (SME), and core enterprise to analyze the credit risk in the case of accounts receivable factoring. The micro-mechanism of how blockchain mitigates the credit risk of supply chain finance is analyzed by comparing the changes in the system’s evolutionary stability strategy before and after the introduction of blockchain. Numerical simulation is also conducted to verify the system’s evolutionary stability strategy. The results reveal that whether the traditional supply chain finance business produces credit risk depends on the amount of accounts receivable, the income obtained by SME and core enterprise when maintaining the stability of the supply chain, and the default income and default cost of both. After the introduction of blockchain, a strict regulatory environment increases the default cost of enterprises in the supply chain. Therefore, the system strictly converges to the Pareto-optimal solution of financial institution accepting financing applications, core enterprise repayment, and SME compliance. In addition, the decrease in the amount of accounts receivable held by a single SME can accelerate the convergence of the tripartite evolutionary game to equilibrium after the introduction of blockchain. Thus, blockchain can effectively mitigate the credit risk that financial institutions face while conducting supply chain finance business. Our research provides theoretical support for optimizing credit risk management in supply chain finance using blockchain.