Mixed financing strategies for capital-constrained retailer in the Chinese financial market

Chuanxin Xia, Yujie Xiao, Wenyan Zhuo and YuJen Hsiao

Pacific-Basin Finance Journal, 2020, vol. 63, issue C

Abstract: Retailers in supply chains usually deal with the problem of capital shortage by obtaining financing from the Chinese financial market. Examining the financing requirement of capital-constrained retailers, this paper studies the optimal decisions of the supplier and retailer in the supply chain, who are both risk-neutral decision-makers under wholesale price contracts. We assume that the retailer may obtain financing from a bank, the supplier and investors. Thus, the retailer can adopt two mixed financing modes: mixed financing of a bank and equity credit and mixed financing of trade and equity credit. We obtain equilibrium decisions under the two financing modes. By comparing the equilibrium results, we find that the mixed financing of trade and equity credit exhibits the only financing equilibrium. A Pareto interval of the wholesale price exists such that both the supplier and retailer can obtain higher profits with the mixed financing of trade and equity credit than the mixed financing of bank and equity credit. Finally, we present a numerical analysis to support our results.

Keywords: Capital-constrained retailer; Risk-neutral; Equity financing; Bank credit; Trade credit (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:63:y:2020:i:c:s0927538x19305396

DOI: 10.1016/j.pacfin.2020.101395

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