Supply Chain Finance Adoption, Working Capital Efficiency, and Firm Profitability Among Manufacturing SMEs: Panel Evidence from Southeast Asia

Abstract

Supply chain finance (SCF) represents a rapidly expanding set of financial instruments and platforms designed to optimize liquidity distribution across buyer-supplier networks by leveraging anchor buyer creditworthiness to extend affordable financing to supply chain participants. Despite its growing commercial prominence and its theoretical promise as a solution to working capital constraints facing manufacturing small and medium enterprises (SMEs) in developing economies, rigorous empirical evidence on the firm-level performance outcomes of SCF adoption among SMEs remains limited. This study employs a balanced panel dataset of 341 manufacturing SMEs across Thailand, Indonesia, and the Philippines over eight fiscal years from 2016 to 2023 to examine the relationship between SCF adoption, cash conversion cycle efficiency, and return on assets. Two-way fixed effects panel regression, augmented by instrumental variable estimation and dynamic GMM to address endogeneity and persistence in working capital outcomes, constitutes the primary analytical method. Results indicate that SCF adoption is associated with a statistically significant reduction in the cash conversion cycle of 18.4 days (p < 0.001) and an improvement in return on assets of 2.3 percentage points (p < 0.01). Buyer relationship quality, SCF platform digital maturity, and anchor buyer credit rating positively moderate the performance effects of SCF adoption. Qualitative evidence from 28 semi-structured interviews with SCF program managers and SME finance directors illuminates the operational mechanisms through which these gains are realized and identifies persistent barriers including collateral-free financing skepticism and platform interoperability limitations. The study contributes to the supply chain finance, working capital management, and SME finance literatures and offers actionable recommendations for banks, fintech SCF providers, and trade finance policymakers in the ASEAN region.