TRADE CREDIT NETWORK WITH A GUARANTEE MECHANISM AND RISK CONTAGION

Abstract

This paper establishes a trade credit network with a guarantee mechanism. Based on the established network model, the trade credit network and the guarantee network are visualized. The characteristics of the distributions of both networks and the firm size distribution are then researched. Concurrently, through computer simulations, the risk contagion among firms is analyzed on the basis of the interactions between the trade credit network and the guarantee network. The results are as follows: (1) the degree of the trade credit network takes on a power-law distribution, as does the upper tail of firm size. (2) For the degree distribution of the guarantee network, the test result of the power-law features changes with a varying value of [Formula: see text] based on the test method of Clauset, [Shalizi and Newman Power-law distributions in empirical data, SIAM Rev. 51 (2009) 661–703]. The change in [Formula: see text] directly affects the establishment of the guarantee links, thus affecting the structure of the guarantee network and its power-law features. (3) Finally, the introduction of a guarantee mechanism aggravates the extent of the risk contagion among firms.