Abstract

http://ssrn.com/abstract=2228897
 
 

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Finance Sourcing in a Supply Chain


Bing Jing


Cheung Kong Graduate School of Business

Abraham Seidmann


University of Rochester, Simon Graduate School of Business

February 1, 2013

Decision Support Systems Journal, Forthcoming

Abstract:     
We examine the relative merits of bank versus trade credit in a supply chain consisting of a manufacturer and a capital-constrained retailer. We show that trade credit is more effective than bank credit in mitigating double marginalization when production costs are relatively low, and that bank credit becomes more effective otherwise. The reason is as follows. Under bank financing, with limited liability the retailer carries the same inventory as if it faces no capital constraint. Under trade financing, the manufacturer shares the risk of low demand with the retailer, prompting the latter to stock a higher inventory than under bank financing. This higher inventory level mitigates (aggravates) double marginalization when the production costs are relatively low (high). This article thus provides a new explanation for trade credit, and also guides the manufacturer’s decision as to when to offer trade credit.

Number of Pages in PDF File: 18

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Date posted: March 5, 2013 ; Last revised: May 29, 2013

Suggested Citation

Jing, Bing and Seidmann, Abraham, Finance Sourcing in a Supply Chain (February 1, 2013). Decision Support Systems Journal, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2228897 or http://dx.doi.org/10.2139/ssrn.2228897

Contact Information

Bing Jing (Contact Author)
Cheung Kong Graduate School of Business ( email )
Oriental Plaza, Tower E3
One East Chang An Avenue
Beijing, 100738
China
Abraham Seidmann
University of Rochester, Simon Graduate School of Business ( email )
Carol Simon Hall 3-333C
Rochester, NY 14627
United States
585-275-5694 (Phone)
585-275-9331 (Fax)
HOME PAGE: http://www.ssb.rochester.edu/fac/Seidmannav/

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