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We compare a Blockchain-based Supply Chain Finance system with traditional bank-based Supply Chain Finance solutions, using a three-tier supply chain model. Our model features financing frictions due to moral hazard with respect to product quality and dynamic updates of collateral-asset-value forecasts. The key advantage of a Blockchain-based system is its ability to create claims to collateral assets at higher supply chain tiers, while a bank-based system allows only creating claims to the immediate buyer's collateral asset. Interestingly, despite this advantage, a Blockchain-based system does not emerge as the dominant financing choice, even if the higher-tier buyer has the same profit margin and the same parameters of the collateral asset process as the immediate-tier buyer. We identify two causes of this surprising result: risk spillover from the higher-tier to the immediate-tier buyer and accumulation of more noise in the collateral asset when using the higher-tier buyer's collateral asset for financing. We provide conditions for the Blockchain-based system to be equally attractive and conditions for the Blockchain-based system to be preferred.

Interface of finance, operations, and risk management (iFORM) is a relatively new research area dealing with timely, complex, and boundary-spanning issues in a variety of settings from start-ups to global enterprises. iFORM research addresses ways to better integrate physical, financial, and informational flows by combining the operational choices of the firm with its financial decisions, and merging information flows between the firm and its customers and suppliers with informational flows between the firm and its investors. We report on the main research themes of the recent iFORM research, based on, and going beyond, papers that appeared in the Manufacturing and Service Operations Management iFORM special issue. We highlight the main emerging contributions in the area. Among the most frequently addressed issues in current research include the following: supply chain finance, such as trade credit and buyer-intermediated finance and their effects on supply chain performance; agency problems, such as risk shifting and managerial short-termism and their influence on operational decisions; contracting between the firm and its investors and how it alters contracting with supply chain partners; and supply risk management in the form of dealing with commodity price fluctuations and supplier performance issues. We suggest four promising directions of future iFORM research: supply chain finance, integrated risk management, start-up and entrepreneurial financing, and asset pricing with supply chains.

In this work we define the characteristics of the interface of finance, operations, and risk management (iFORM) research and provide examples of iFORM research questions. We illustrate why this is an interesting area and discuss where the two disciplines overlap in a meaningful way. Our goal is to lower the entry cost for new researchers by providing primers on (1) key finance results and papers that OM researchers endeavoring to enter into this field must know; (2) key OM results and papers that finance researchers endeavoring to enter into this field must know. Furthermore, we offer our perspective on resources to help readers to accelerate their iFORM research and on how to write, publish, and referee iFORM papers.

We study joint operational and financing decisions of a cashconstrained manufacturing firm in the presence of bank financing and trade credit, where banks set credit limit based on borrowers repayment histories. Trade credit financing enables the manufacturing firm to build credit history, which affects bank financing availability in the future periods. This can make trade credit valuable, even though it is costly in the current period. We quantify the value of trade credit as a way of securing access to future bank financing and investigate how financing considerations distort the firm’s operational decisions.

Problem Definition: We study how a new development in entrepreneurship --- crowdfunding --- interacts with more traditional financing sources, such as venture capital (VC) and bank financing. Academic/Practical Relevance: While extant literature has mainly focused on predicting crowdfunding campaign outcomes and optimal campaign design, the broader questions of how crowdfunding affects entrepreneurs and how crowdfunding platforms fit in with traditional startup financing sources, such as banks and VCs, have received relatively little attention. Methodology: We model a bargaining game, with a moral-hazard problem between an entrepreneur and a bank, and a double-sided moral-hazard problem between the entrepreneur and a VC, with respect to their non-contractible efforts. Results: We decompose the economic value of crowdfunding into cash gains or losses, costs of bad investments avoided, and project-payoff probability update. This economic value is generally shared between entrepreneurs and investors, benefiting both. Moreover, crowdfunding can help to overcome the agency problems. However, crowdfunding can also harm the entrepreneur and the VC. Competition from other investors reduces value to VC investors, who may walk away from the deal entirely. This can hurt entrepreneurs who lose out on valuable VC operational expertise (operational support, access to supplier networks, etc.). Managerial Implications: The model provides a theoretical underpinning for recent empirical observations that some projects lose VC financing after successful crowdfunding campaigns. Our results complement earlier studies in Operations Management by demonstrating that the entrepreneurs' objectives are more complex than simply maximizing the payoffs from crowdfunding campaigns.

Interface of Finance, Operations and Risk Management (iFORM) is a relatively new research area dealing with timely, complex and boundary-spanning issues in a variety of settings from start-ups to global enterprises. iFORM research addresses ways to better integrate physical, financial, and informational flows by combining the operational choices of the firm with its financial decisions, and merging information flows between the firm and its customers and suppliers with informational flows between the firm and its investors. We report on the main research themes of the recent iFORM research, based on, and going beyond, papers that appeared in the MS agency problems, such as risk-shifting and managerial short-termism and their influence on operational decisions; contracting between the firm and its investors and how it alters contracting with supply chain partners; and supply risk management in the form of dealing with commodity prices fluctuations and supplier performance issues. We suggest four promising directions of future iFORM research: supply chain finance, integrated risk management, start-up and entrepreneurial financing, and asset pricing with supply chains.

The risk of supply disruptions because of suppliers' financial problems plays a prominent role in manufacturers' risk portfolios. Even large suppliers (e.g., Delphi) could file for bankruptcy, and manufacturers' actions, such as financial subsidies to suppliers, profoundly affect suppliers' financial health. Using a dynamic, stochastic, periodic-review model of the manufacturer's joint capacity reservation and financial subsidy decisions and a general firm-value model of the supplier's financial state, this paper addresses the following questions: What is the optimal joint capacity ordering and financial subsidy policy for the manufacturer? Must subsidy and capacity ordering decisions be made jointly? How good are the recommendations from the traditional procurement models, which ignore the benefits of controlling the supplier's financial state through subsidies? The paper presents general assumptions that allow the manufacturer to make ordering decisions independent of subsidy decisions and investigates interactions between ordering and subsidy decisions when these assumptions are violated. Conditions are presented for the optimal subsidy policy to have a “subsidize-up-to” structure and for the optimal ordering decisions to be newsvendor fractiles.

Credit provides a means for uninsured households and businesses to manage disaster losses, but access to credit may be tenuous after severe events. We examine the effects of natural disasters on credit supply in a panel of community lenders in developing and emerging economies. We find that disasters reduce lending; top quartile events reduce loan growth by 30 percent. We consider two potential causes of lending reductions: 1) disasters reduce expected returns on loans made after the event or 2) capital constraints, lenders’ difficulty replacing equity lost during the event. We develop a dynamic model that informs our empirical identification of these causes and conclude that capital constraints cause observed credit contractions. We also examine the effects of insurance market development and find evidence that insurance preserves the creditworthiness of borrowers. Our results highlight the importance to small and medium enterprises of proactively managing risk and identify new insurance market opportunities.

When information is a public good, in equilibrium firms under-invest (relative to the social optimum) in acquiring it, in an attempt to free-ride on investments of other firms. When firms are financed by debt, in equilibrium equity holders invest in riskier projects, relative to the firm-optimal. The interactions between these two inefficiencies arise when risky investments are needed to acquire information that becomes a public good, e.g., as in some RD a demonstration of the value of commitment in a multi-stage game; and reflections on the importance of accounting for debt financing in predicting the effects of subsidies on R&D investments.

Many owners of growing privately held firms make operational and financial decisions in an effort to maximize the expected present value of the proceeds from an initial public offering (IPO). We ask: “What is the right time to make an IPO?” and “How should operational and financial decisions be coordinated to increase the likelihood of a successful IPO?” Financial and operational decisions in this problem are linked because adequate financial capital is crucial for operational decisions to be feasible and operational decisions affect the firm's access to financial resources. The IPO event is treated as a stopping time in an infinite-horizon discounted Markov decision process. Unlike traditional stopping-time models, at every stage the model includes other decisions such as production, sales, and loan size. The results include (1) characterization of an optimal capacity-expansion policy, (2) sufficient conditions for a monotone threshold rule to yield an optimal IPO decision, and (3) algorithmic implications of results in (1) and (2).

Description The goal of this special issue is to disseminate novel, insightful, and relevant research that unifies concepts from finance, operations, and risk management. All submissions must articulate the operational component of the research and must have a clear finance or risk management connection (but not necessarily both). Potential research topics include (and certainly are not limited to): • Supply chain finance • Interactions between financial claimholders and operational claimholders of a firm • Moral hazard and asymmetric information problems that arise when financial and operational claimholders interact • Novel channels of financing operational decisions • Propagation of financial information in supply chains • The effects of operational decisions of firms (financial and nonfinancial) on financial markets and financial markets’ efficiency • The use of financial markets to inform operational decisions • Novel financial and operational risks and their management • Meaningful applications of data analytics to operations-finance and operations–risk-management interfaces • Insurance and supply chain risks • Risk issues and hedging in commodity procurement • Revenue management: Risk and financial implications of dynamic capacity planning and pricing strategies • Special finance and operations interface topics in industries such as financial services, energy, commodity trading, shipping, and logistics • Operational and financial approaches in managing disruption and catastrophic risks in global supply chains. Groundbreaking and boundary expanding ideas are particularly welcomed. Both theoretical and empirical analyses are encouraged. Submitted papers should feature original research contributions, display the rigor emphasized in the editorial statement of M&SOM, clearly articulate their managerial relevance, and obey the journal’s author guidelines. The review process will be handled by the guest editors and an ad hoc set of associate editors.