The Impact of Trade Credit on Financing Strategy in a Dual Capital-Constrained Supply Chain

Xiaofeng Xie, Yang Yang, Xingyang Lyu, Fengying Zhang, Xiuying Hu and Zongfang Zhou
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Xiaofeng Xie: Innovation Center of Nursing Research, Nursing Key Laboratory of Sichuan Province, West China Hospital, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China2West China School of Nursing, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China
Yang Yang: School of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu 611130, Sichuan Province, P. R. China
Xingyang Lyu: School of Business Administration, Southwestern University of Finance and Economics, Chengdu 611130, Sichuan Province, P. R. China
Fengying Zhang: West China School of Nursing, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China5West China Hospital, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China
Xiuying Hu: Innovation Center of Nursing Research, Nursing Key Laboratory of Sichuan Province, West China Hospital, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China2West China School of Nursing, Sichuan University, Chengdu 610041, Sichuan Province, P. R. China
Zongfang Zhou: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu 611731, Sichuan Province, P. R. China

International Journal of Information Technology & Decision Making (IJITDM), 2025, vol. 24, issue 01, 223-257

Abstract: This study analyzes the financing strategy of a two-echelon supply chain, consisting of a manufacturer and a retailer, both subject to capital constraints. Specifically, the bank provides loans to the manufacturer, who then grants trade credit to the retailer. Based on the three-party game analysis framework of the bank, manufacturer, and retailer, this paper constructs a supply chain financing model under the information symmetry and information asymmetry structures, respectively; measures the maximum financing ability of the manufacturer; and discusses the influence of trade credit, moral hazard, and information structure on the manufacturer’s and bank’s strategies. The results show that under the trade credit situation, it is critical for the bank to provide loan to manufacturer who does not have moral hazard. The maximum financing capacity of the manufacturer is affected by the rate of return on moral hazard and the intensity of trade credit default. The increase of trade credit default intensity and risk exposure will lead to the increase of the interest rate of bank loan, and in the case of information asymmetry, the bank will often ask for a higher interest rate to deal with the information disadvantage. The strategy for the bank to make the credit line is more complex, and the degree of information asymmetry plays a positive moderating effect on the influence of trade credit on the credit line. Our findings provide implications for participants who implement financing actions to improve their financial performance and control the moral hazard and default risk along a supply chain.

Keywords: Dual capital-constrained; trade credit; default risk; financing strategy; information asymmetry (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S0219622022500687

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