Financial innovation in supply chains and debt contagion: evidence from manufacturing industries

• Financial innovation in supply chains lowers debt contagion. • This effect is stronger among manufacturers with higher centrality and having more trade credit. • This paper has profound implications for executives and policymakers. The ripple effect of debt contagion can incur severe economic consequences. This paper investigates how financial innovation in supply chains affects corporate debt contagion. Based on the data of manufacturing industries from 2015 to 2024, we offer compelling evidence that higher financial innovation in supply chains is associated with a lower possibility of debt contagion. This effect is more substantial among manufacturers belonging to more supply chain relationships and having more trade credit. Further research suggests that information transparency substantially inhibits debt contagion. The findings are still consistent after coping with endogeneity problems. This research enriches the supply chain research.