How supply chain finance shapes strategic deviation: evidence from China

Purpose Amidst rapid digital transformation in emerging markets, competition is increasingly shifting from individual firms to entire industrial chains. Supply chain finance (SCF) has become an important driver of firms' strategic deviation (DS) in the pursuit of novel competitive advantages. However, the dynamic effect of SCF on firms' strategic choices remains largely unexplored empirically. Design/methodology/approach Using data from Chinese A-share listed firms, this study integrates ordinary least squares and panel vector autoregression to investigate this dynamic relationship through a multilevel analysis. Findings The study obtained several findings. (1) A significant U-shaped relationship exists between the SCF level (SCFL) and DS, driven by dynamic capabilities. (2) For firms with high SCFL, SCF enhances dynamic capabilities – particularly innovation capability – with long-lasting effects. Although all three types of dynamic capabilities promote DS, innovative and adaptive capabilities are the main drivers that help firms convert SCF-induced resource slack into strategic advantage and sustain long-term competitiveness. (3) For firms with low SCFL, SCF persistently weakens all three types of dynamic capabilities, thus leading to a downward spiral of reduced exploration intent and declining performance. Notably, innovative and adaptive capabilities exert lasting negative effects on DS, underscoring their strategic importance. Research limitations/implications (1) The sample is limited to Chinese A-share listed firms, which may constrain the generalisability of the findings. Future research could extend the analysis to small and medium-sized enterprises or multinational samples to improve robustness and applicability. (2) The study does not consider the transformative role of digital technologies, particularly artificial intelligence. Future research should examine their potential in enabling strategic intelligence and adaptability within SCF systems. (3) The analysis emphasises the direct effect of SCF and the mediating role of dynamic capabilities but omits supply chain network structures. Incorporating social network analysis and relational governance could reveal how network position and governance shape strategic heterogeneity. Practical implications This study argues that SCF should be treated as a structural policy tool that acts as both stabiliser and accelerator. Regulators and industrial policymakers ought to differentiate SCF-based interventions between core and non-core firms, designing flexible terms for core firms while guiding more disciplined, stage-based experimentation for non-core firms. China should further broaden SCF access for SMEs to deepen their supply-chain embedding and enhance systemic resilience. Finally, SCF platforms should incorporate dynamic capability assessments so that financial support is channelled to firms able to convert DS into sustainable advantage. Originality/value This study provides novel insights into the dynamic influence of SCFL on DS, clarifies the mediating role of dynamic capabilities and highlights the organisational behavioural shifts induced by financial resource allocation. Furthermore, it advances the integration of financial strategy and capability-based perspectives within strategic management research.