How does reverse factoring affect operating performance? An event study of Chinese manufacturing firms

Abstract

Purpose

As a popular supply chain finance (SCF) strategy, reverse factoring has been widely adopted by buyer firms. However, the extant literature provides scant empirical evidence on the performance effect of reverse factoring. The purpose of this study is to seek to narrow this gap by empirically examining the relationship between reverse factoring and operating performance and the contingency conditions of this relationship.

Design/methodology/approach

Based on a sample of 167 announcements of reverse factoring implementation made by publicly listed Chinese manufacturing firms between 2014 and 2018, this paper employs a long-term event study approach to analyze the operating performance effect of reverse factoring as well as the moderating effects of production and innovation capabilities.

Findings

The event study results indicate that reverse factoring has a positive effect on buyer firms' operating performance in terms of cost efficiency and operating margin. In addition, both production and innovation capabilities positively moderate the relationship between reverse factoring and operating margin. However, neither of them moderates the relationship between reverse factoring and cost efficiency.

Originality/value

This is the first study that empirically examines the impact of reverse factoring on operating performance based on secondary data. Furthermore, it sheds light on the SCF literature by providing insights into the contingency effects of production and innovation capabilities, which also extends our understanding of the application of extended resource-based view in SCF research.

Citation

Shou, Y., Shao, J. and Wang, W. (2021), "How does reverse factoring affect operating performance? An event study of Chinese manufacturing firms", International Journal of Operations & Production Management, Vol. 41 No. 4, pp. 289-312. https://doi.org/10.1108/IJOPM-07-2020-0469