Managing financial investments in supply chain networks: The roles of network power and control

Abstract

The financialization of firms refers to the phenomenon of non-financial firms increasingly engaging in financial activities rather than traditional production and operational investments. In today's competitive and complex supply chain networks (SCNs), firms do not operate in isolation but heavily rely on their partners. This interdependence may shape their investment behaviours. However, the mechanism of how the network structure affects the financialization of firms in SCNs is yet unclear. Therefore, this study draws on the resource dependence theory to investigate the role of network structure—encompassing network power and control—in shaping corporate financialization in SCNs. We construct SCNs for the focal firms in a sample of 2307 Chinese listed enterprises from 2009 to 2021 and find significantly negative relationships between corporate financialization and both network power and control. This may be because network power and control diminish enterprises' precautionary saving and speculative motivations through financing and information channels. Moreover, their effect on corporate financialization was found to be more pronounced for non-state-owned enterprises (non-SOEs) and firms with low market share, high customer concentration, and distant supply chain geographic proximity. Furthermore, our results indicate that enterprises exhibiting greater network power and control in SCNs tend to reduce their financial investments, which benefits their innovation and total factor productivity. By exploring the factors that influence corporate financialization through a network lens, this study offers valuable insight into the issues regarding financialization, thus promoting the sustainable development of firms and the development of countries' real economies.