Blockchain Adoption: Know its Role in Reducing Data Monopolization in Supply Chains

Devdiscourse News DeskDevdiscourse News Desk | Updated: 31-05-2024 16:12 IST | Created: 31-05-2024 16:12 IST
Blockchain Adoption: Know its Role in Reducing Data Monopolization in Supply Chains
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In the realm of supply chain finance, blockchain technology emerges as a promising solution to address the long-standing issue of information asymmetry. Researchers Wei Jiang, Chunxing Gao, Dianyao Kang, and Guanrui Yi from the School of Economics, Qingdao University, China, and Faculty of Business, Lingnan University, Hong Kong, China, delve into the mechanisms by which blockchain technology mitigates information asymmetry before and after contract signing.

Ensuring Data Security and Transparency

Blockchain technology, known for its secure and encrypted ledger, facilitates reliable, shareable, and timestamped records of transactions. Its decentralized nature eliminates intermediary steps, reducing the monopolization of data and fostering data sharing among supply chain members. This, in turn, mitigates information asymmetry, which has traditionally plagued supply chain finance by enabling more transparent and secure transactions.

Ensuring Full Disclosure with Blockchain

The paper uses a two-stage game evolution analysis to show how blockchain affects information asymmetry. In the first stage, it examines how blockchain encourages full information sharing and adherence to contracts when the benefits of sharing information are positive and there is external regulatory pressure. The analysis finds that, under these conditions, both parties in a transaction are motivated to completely share information and honor their contracts.

The theoretical framework constructed in the paper includes a two-stage complete information static game model, focusing on the behaviors of trading parties before and after contract signing. The model highlights that traditional supply chain finance often leads to adverse selection issues, with parties engaging in opportunistic behaviors such as false information disclosure and withholding private information. In contrast, blockchain's distributed ledger and smart contract systems aim to enhance transparency and trust among trading partners.

Blockchain's Role and Challenges in Information Sharing

The study emphasizes the role of blockchain's consensus mechanism, smart contracts, and asymmetric encryption technology in promoting full information sharing. These mechanisms ensure traceable and irreversible transactions, enhance data security, and prevent tampering, thereby reducing opportunities for opportunistic behaviors. However, the study also acknowledges that blockchain introduces new security and ethical risks regarding information disclosure.

Empirically, the research investigates the actual impact of blockchain on resolving information asymmetry using data from Chinese-listed companies. The analysis takes into account the heterogeneity in information technology capabilities among enterprises and examines how internal and external constraints affect the marginal profit of information sharing. The findings underscore the positive role of blockchain in alleviating information asymmetry but also highlight the challenges posed by these constraints.

Correlation Between Blockchain Use and Information Symmetry

The empirical analysis uses variables such as Enterprise Default Risk (EDF) and Supply Chain Efficiency (DSE) to measure the degree of information asymmetry. The results indicate a strong positive correlation between a company's blockchain adoption and its level of information symmetry. This correlation remains significant even after controlling for various factors such as firm size, leverage, and return on assets.

Furthermore, the study conducts robustness tests using Driscoll-Kraay estimation to address heteroscedasticity and serial correlation issues. These tests confirm the significant negative correlation between a company's information asymmetry level and its blockchain adoption, thereby reinforcing the initial conclusions.

Blockchain's Potential in Supply Chain Finance

The study also explores the influence of different constraints on information sharing within firms. It examines factors such as corporate audits, firm life cycle stages, industry competition levels, and media attention. The results reveal that blockchain's positive impact on information symmetry is more pronounced under conditions of unqualified audit opinions, growth or maturity stages of firms, higher competition intensity, and higher media attention.

It highlights the significant potential of blockchain technology in addressing information asymmetry in supply chain finance. It underscores the need for enhanced data sharing within supply chain networks and robust blockchain data governance to maximize the benefits of blockchain applications. The study's findings have important policy implications, suggesting that government regulatory bodies should actively promote data sharing, invest in blockchain technology, and establish efficient incentive mechanisms to encourage participation in data sharing and governance.

This comprehensive analysis provides valuable insights into how blockchain technology can revolutionize supply chain finance by mitigating information asymmetry and promoting transparent, secure, and efficient transactions.

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