Supply Chain Finance and Impacts of Consumers’ Sustainability Awareness

Forthcoming in The North American Journal of Economics and Finance. DOI/10.1016/j.najef.2019.04.005

26 Pages Posted: 14 May 2019 Last revised: 3 Aug 2021

See all articles by Hao-Chang Sung

Hao-Chang Sung

Department of Business Administration, National Chung Cheng University

Shirley J. Ho

Department of Economics, National Chengchi University

Date Written: April 13, 2019

Abstract

Several new methods have been proposed for supply chain finance (SCF) with bank credits, but none of them mentions how to solve the borrowers' moral hazard problems in SCF. This paper examines the moral hazard problem in supply chain financing with procurement contract (or purchase order). We show that since supply chain is an up-down directed structure, when financing with the procurement contract, the supplier's effort monitoring task can be rendered to the procurement contract, which can secure the supplier's optimal effort and capital choices in production. Hence, compared to separate lending, the supplier's credit rationing problem can be mitigated, and most importantly, banks' under-estimation on the supplier's default risk and the over-estimation on the retailer's default risk will both decrease. We further show that the retailer's corporate social responsibility expenditure can increase consumers' brand recognition, thus when facing demand shocks arising from consumer's unexpected concerns, the retailer can better stabilize the firm value.

Keywords: Supply Chain Finance, Bank Credit, Moral Hazard, Default Risk, Corporate Social Responsibility

JEL Classification: G21, M11, M14

Suggested Citation

Sung, Hao-Chang and Ho, Shirley J., Supply Chain Finance and Impacts of Consumers’ Sustainability Awareness (April 13, 2019). Forthcoming in The North American Journal of Economics and Finance. DOI/10.1016/j.najef.2019.04.005, Available at SSRN: https://ssrn.com/abstract=3371312 or http://dx.doi.org/10.2139/ssrn.3371312

Hao-Chang Sung (Contact Author)

Department of Business Administration, National Chung Cheng University ( email )

No.168, Sec. 1, University Rd., Minhsiung,
Chiayi, 621301
Taiwan

Shirley J. Ho

Department of Economics, National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei, 11623
Taiwan

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