Abstract
Certain attributes of the hog industry increase the production risk in nodal enterprises of the hog supply chain, leading to high financing costs and eventually resulting in liquidity constraints. When the hog supply chain node enterprises are subjected to external shocks, on the basis of the commercial credit relationship in the supply chain, the entire supply chain generates liquidity risks and systemic risks. We analyze the input and output of the hog supply chain node enterprises under the constraint of liquidity, construct the mathematical model, discuss the dynamic differences of liquidity constraints in different situations, and measures the commercial credit risk and anti-risk ability of the pig supply chain node enterprises. If the external shock is less than a certain value, the current profits of the hog enterprise can entirely make up for the loss caused by external shocks, and the production of the firm will return to its state of equilibrium. If the external shock is large enough, liquidity constraints will seriously restrict the production input of the enterprise, which then leads to a deceleration of production input and may ultimately result in bankruptcy. We believe that the structure of the hog industry supply chain should be constantly adjusted to optimize the industrial upgrading and organizational form of the hog supply chain.
Highlights
The hog industry has been an important part of China’s agricultural sector; the consumption of pork accounts for over 60% of China’s total meat consumption
We can arrive at the following basic results: Result 1: For a middle-sized hog farming firm, if the external shock is in the range of 0~8.15, current earnings can compensate for the loss due to external shocks and will not affect the stable production of the firm in the period for a medium-scale hog breeding firm
With serious information asymmetry and credit rationing in the capital market, liquidity constraints inevitably appear in firms of different sizes
Summary
The hog industry has been an important part of China’s agricultural sector; the consumption of pork accounts for over 60% of China’s total meat consumption. Commercial credit between an enterprise and its suppliers widens the enterprise’s financing channel and alleviates liquidity constraints [4] Allen et al [5], Duan, Yang and Zhang [6], Sun et al [7] have found that commercial credit is useful for enterprises— small and medium sized enterprises, private enterprises—that are facing difficult external financing problems; in some instances, commercial credit may even exceed bank credit and can effectively alleviate liquidity constraints These scholars have conducted substantial research regarding the costs of and reasons for commercial credit financing and have demonstrated that commercial credit can alleviate liquidity constraints; they have not conducted a deep analysis of how enterprises, especially hog enterprises, obtain financing through commercial credit to alleviate such liquidity constraints. Impacts of external shocks on the decisions of hog supply chains enterprises are facing different levels of external shocks and set forth appropriate and reasonable suggestions based on these results
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