Supply chain financing decision with installment redemption under dynamic pledge

Abstract

In this paper, the dynamic pledge financing decision problem of a borrowing enterprise is studied in the context of a supply chain finance system that includes a financial institution and a borrowing enterprise (small and medium‐sized enterprises [SMEs]). The optimal Inventory pledge, as well as redemption decisions of the borrowing enterprise, are analyzed under the consideration of constant and changing redemption prices, respectively, and the effects of the main parameters on the optimal decisions are discussed. It found that (1) when the redemption price is constant, the borrowing enterprise's optimal quantity of inventory pledge increases as the initial inventory quantity increases or the redemption price decreases; (2) when the redemption price varies, the borrowing enterprise's optimal inventory redemption quantity decreases as the initial inventory pledge and the redemption price increase; and (3) the borrowing enterprise's redemption decision is affected by the previous period's redemption quantity and the actual sales quantity. The conclusions of this paper not only provide suggestions for SMEs to make inventory pledge financing decisions but also provide references for financial institutions to formulate relevant financing rules.