Financing equilibrium in a green supply chain with capital constraint

Abstract

Green supply chain management has received significant attention from both academic and industrial fields with the development of ecological economics. However, the fact that upstream manufacturers may have insufficient capital for greening and operational decisions is ignored. This study investigates a green supply chain financing (GSCF) system consisting of one capital-constrained manufacturer, one retailer, and one bank. A green manufacturer can obtain loans through two financing scenarios: green credit financing (GCF) and mixed financing (combining a partial prepayment from the retailer and GCF). We derive the financing equilibriums of the GSCF system under GCF and mixed financing, then compare them against a benchmark under which the manufacturer has sufficient capital to invest in green production. The analytical and numerical results reveal that the manufacturer is willing to undertake green investment, while the retailer is better off providing a partial prepayment. However, when the consumer’s environmental awareness is relatively lower or the manufacturer’s initial capital is relatively higher, the manufacturer is not willing to accept the prepayment due to the squeeze from the retailer.