Optimal Financing Models Offered by Manufacturers with Risk Aversion and Market Competition Considerations

Abstract

Trade credit finance (TCF), retailer independent finance (RIF), and partial credit guarantee (PCG) finance are all important financing tools for capital‐constrained retailers. Risk aversion has a significant impact on financing, but it is difficult to measure. This research investigates the manufacturer's financing provision strategies considering risk aversion and capital market competition. First, an ordinary least squares method with conditional value at risk criteria is proposed to measure the risk attitude of decision‐makers. Second, the equilibrium mode of financing provision and impacts of risk aversion and the retailer's initial capital are analyzed. Third, a laboratory experiment and numerical analysis are conducted to verify the risk aversion estimation method and other theoretical results. We draw the following conclusions. First, the equilibrium financing provision mode changes with the degree of risk aversion and retailer's initial capital. Although the manufacturer prefers TCF and PCG to RIF, the retailer chooses the RIF mode when its initial capital is low. A variable parameter guarantee mechanism is proposed to encourage more retailers to choose PCG instead of RIF. Second, the risk‐averse financing system realizes super‐centralization (i.e., utility in the decentralized system is larger than that in the centralized system) when the manufacturer is less risk averse than the other participants. A Pareto‐optimality mechanism is designed to realize super‐centralization and coordinate the decentralized financing system. This research provides financing providers with practical guidance on the efficient implementation of supply chain financing.

Research on decision analysis with CVaR for supply chain finance based on partial credit guarantee and blockchain technology

“…Assuming the market demand satisfies a uniform distribution y $ U 0, 100 ð Þ (Xue & Wang, 2023;Zhu et al, 2020), the financial market is in a perfect-competition state and financial institutions tend to be willing to lend only to core firms with good credit and earn average market returns, and the financial institution decision is λ ¼ 1, R PÃ ¼ R f (Li et al, 2020). Dongpeng Special Drink 500 mL Gold was selected as the database.…”

System dynamics modeling and robustness analysis for capital-constrained supply chain under disruption

“…Many scholars have conducted related research on the capital constraint of downstream buyers or sellers. There are three dominant financing modes for capital-constrained retailers (Li et al. , 2020).…”

“…Then, based on the existing research, Xu and Fang (2020) studied the financing strategies of an emission-dependent and capital-constrained SC and compared two financing modes of PCG and trade credit. Li et al (2020) expanded the basic model, considering risk aversion and market competition factors and analyzed the financial equilibrium decisions under TCF, RIF and PCG. Existing studies primarily study the internal stakeholders' operation and financing decisions of the SC financial system and focus on financing modes selection and SC coordination strategies.…”

“…Then, based on the existing research, Xu and Fang (2020) studied the financing strategies of an emission-dependent and capital-constrained SC and compared two financing modes of PCG and trade credit. Li et al. (2020) expanded the basic model, considering risk aversion and market competition factors and analyzed the financial equilibrium decisions under TCF, RIF and PCG.…”

“…Many scholars have conducted related research on the capital constraint of downstream buyers or sellers. There are three dominant financing modes for capital-constrained retailers (Li et al, 2020). The first is retailer independent finance (RIF), with retailers independently applying for finance from Capitalconstrained supply chain under disruption commercial banks or P2P platforms.…”