The Effects of Market Power Discrepancy on Trade Credit Scales: A Paradoxical Perspective of Digitalization

Abstract

We examine the relationship between corporate market power discrepancy (MPD) and trade credit (TC), and whether digital transformation (DT) moderates this relationship. This research adopts TC, one of the most important financing schemes in supply chain finance (SCF), to represent the SCF-based financing ability of a firm, and conducts empirical research using a sample of Chinese publicly traded firms and their suppliers and customers spanning from 2011 to 2022. We first investigate the effect of the MPD, including both suppliers' market power discrepancy (SMPD) and customers' market power discrepancy (CMPD), on the scales of focal firms' TC. We find that the SMPD is positively correlated with the TC of focal firms, while the CMPD is negatively correlated with its TC. Further, we find that DT enhances the effect of SMPD on TC scales but weakens the effect of CMPD on TC scales. This study advances understanding of MPD's effects on TC from a paradoxical perspective of digitalization, offering practitioners insights into the impact of deploying digital technologies on supply chain relationships.