Competition of the mechanisms: how Chinese home appliance firms coped with default risk of trade credit?

Mariko Watanabe

No 312, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: During the transition period from a planned economy to a market economy in 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. Interviews with home electronics appliance firms revealed that firms coped with this problem by adjusting their sales mechanisms (found four types), and the benefit of institutions was limited. A theoretical analysis claim that spot and integration are inferior to contracts, a contract with a rebate on volume and prepayment against an exclusive agent can realize the lowest cost and price. The empirical part showed that mechanisms converged into a mechanism with the rebate on volume an against exclusive agent and its price level is the lowest. The competition is the driving force of the convergence of mechanisms and improvement risk management capacity.

Keywords: China; Electronic industries; Corporate accounting; Industrial management; Trade credit; Distribution channel strategy; Contract; Convergence of mechanisms (search for similar items in EconPapers)
JEL-codes: D22 G32 L14 L68 L81 O16 O17 (search for similar items in EconPapers)
Date: 2011-12-01
New Economics Papers: this item is included in nep-tra
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Published in IDE Discussion Paper = IDE Discussion Paper, No. 312. 2011-12-01

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