Financing preferences and performance for an emission-dependent supply chain: Supplier vs. bank

Erbao Cao, Lingxia Du and Junhu Ruan

International Journal of Production Economics, 2019, vol. 208, issue C, 383-399

Abstract: Many small and middle-sized enterprises (SMEs) with capital constraints have two primary short-term financing modes: internal financing (supplier) and external financing (bank). We consider an emission-dependent supply chain with one supplier and one emission-dependent manufacturer that are capital-constrained and in need of short-term financing. We investigate the financing preferences of the supply chain from a competitive bank or supplier when demand is uncertain and consumers have low-carbon preferences. Under the cap-and-trade system, we show that the existence of investments in carbon abatement will have no impact on the selection of financing mode. We find that the supplier's trade credit financing serves as a unique financing equilibrium for manufacturers regardless of whether investments in carbon abatement are considered. Irrespective of the chosen financing equilibrium, if a manufacturer chooses to invest in carbon abatement, the dominant supplier will offer a wholesale price to prompt the manufacturer to choose the largest feasible carbon emission reduction and maximize his profit. In addition, we present a set of numerical analyses to compare the results of different financing modes and the financing equilibrium with and without carbon abatement, and we analyze the impacts of key parameters on the performance of supply chain members.

Keywords: Emission-dependent supply chain; Financing; Cap-and-trade; Capital constraint; Trade credit; Carbon abatement (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (36)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:208:y:2019:i:c:p:383-399

DOI: 10.1016/j.ijpe.2018.08.001

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