Trade Credit, Risk Sharing, and Inventory Financing Portfolios
By S. Alex Yang, John R. Birge. Management Sciences, 2017
478 citations recorded by the source corpus.
As an integrated part of a supply contract, trade credit has intrinsic connections with supply chain coordination and inventory management. Using a model that explicitly captures the interaction of firms’ operations decisions, financial constraints, and multiple financing channels (bank loans and trade credit), this paper attempts to better understand the risk-sharing role of trade credit—that is, how trade credit enhances supply chain efficiency by allowing the retailer to partially share the demand risk with the supplier. Within this role, in equilibrium, trade credit is an indispensable external source for inventory financing, even when the supplier is at a disadvantageous position in managing default relative to a bank. Specifically, the equilibrium trade credit contract is net terms when the retailer’s financial status is relatively strong. Accordingly, trade credit is the only external source that the retailer uses to finance inventory. By contrast, if the retailer’s cash level is low, the supplier ...
Subfields: Accounting, Management Information Systems
View Paper: https://www.semanticscholar.org/paper/c7a4ed1bb4e03fe94f2abf78d60e616695ff3269
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Citations in the corpus
- A Trade Credit Model with Asymmetric Competing Retailers (2018, background): “Yang and Birge (2017) propose an inventory financing portfolio of cash, trade credit, and short-term debt.”