Bank Credit Financing Research Articles

Financing models for an online seller with performance risk in an E-commerce marketplace

Third-party sellers on e-commerce marketplaces (e.g., Amazon and Alibaba) have been primarily dependent on conventional financing modes such as bank credit financing (BCF) to meet their working capital requirements. Many of these platforms have recently started novel financing programs (platform credit financing, PCF) for the sellers under the umbrella of Supply Chain Finance. For example, Amazon provides unsecured loans to third-party sellers on its platform under the Amazon lending program. These loans are risky for the platform. If the seller is unable to fulfill customer’s orders because of some internal inefficiencies (performance risk), the platform loses the loan amount and incurs a goodwill cost among its customer base. In this paper, we develop a series of game-theoretic models to analyze and compare BCF and PCF for a cash-constrained third-party seller on an e-commerce marketplace. We derive optimal interest rates that the platform may charge the seller depending on its performance risk. We derive conditions under which either BCF or PCF could be more profitable for the seller. We introduce innovative contracts (Guaranteed Demand Increment Contract and Lending Rate Matching Contract initiated by the platform and Lumpsum Transfer Contract initiated by the seller) that incentivize the seller or platform to act in a mutually beneficial way. Our analysis shows that these contracts achieve win–win outcomes and increase the total supply chain profit.

Financing Strategy and Carbon Emission Abatement in a Supply Chain considering Retailers’ Competition

This paper investigates the issues of financing channels (bank credit financing, trade credit financing, and dual-channel financing) and carbon emission abatement in a supply chain consisting of one capital-constrained manufacturer and two capital-constrained retailers. Compared with bank credit, we find that every member can make more profit under trade credit when only one financing channel is available. When both bank credit and trade credit are available, the retailers’ financing strategy highly depends on the interest rates charged by the creditors. In addition, we also examine the impact of financing channels on emission abatement. It shows that the manufacturer reduces more carbon emissions under trade credit. Interestingly, the emission abatement has nothing to do with trade credit interest rate when retailers only adopt trade credit, whereas it is closely related to trade credit interest rate under dual-channel financing.

Financing and coordination strategies for a manufacturer with limited operating and green innovation capital: bank credit financing versus supplier green investment

Financing and coordination strategies for a manufacturer with limited operating and green innovation capital: bank credit financing versus supplier green investment

Financing and ordering decisions in a capital-constrained and risk-averse supply chain for the monopolist and non-monopolist supplier

<p style='text-indent:20px;'>The paper focuses on a supply chain consisting of one supplier and one capital-constrained retailer. The retailer can solve the limited working capital problem through a bank, an investor, or its supplier. When facing business risks brought by uncertain demand, the retailer and the supplier are risk-averse behavior. To better explore the financing decision, we consider the supplier has two different cases: monopolist firm and non-monopolist firm. We first use the CVaR criterion to incorporate the members' risk-averse behavior into the objectives function. Then the equilibrium results of the supply chain are derived under three financing schemes, respectively. Our analysis finds when the supplier is a relatively low risk-averse monopolist firm, trade credit financing is the unique financing equilibrium. When the supplier is a relatively high risk-averse monopolist firm and non-monopolist firm, schemes, if the valuation level is relatively low, all members prefer bank credit financing. Otherwise, the members prefer equity financing. By tuning the valuation level, we obtain the conditions in which the supply chain realizes Pareto improvement relative to the other two financing schemes. Finally, we use numerical analysis to verify the above theoretical results.</p>

Impact of financing models and carbon allowance allocation rules in a supply chain

This paper focuses on a capital-constrained supply chain system under a carbon trading environment. Bank Credit Financing and Trade Credit Financing models are designed under the grandfathering and benchmarking allocation rules. Through constructing a Stackelberg game model consisting of a supplier and a capital-constrained manufacturer who is investing in carbon emission reduction, we analyze the optimal decisions and financing selection strategies under different allowance allocation rules. These results show that the manufacturer always invests a higher carbon emission reduction under the benchmarking rule. Meanwhile, he always prefers BCF no matter how the carbon allocation rules change. Whereas, the upstream supplier would like to provide delayed payment under TCF. The government is beneficial to provide the benchmarking rule to the manufacturer when his historical carbon emission is lower, otherwise, the government can implement the grandfathering rule.

Financing strategy selection and coordination considering risk aversion in a capital-constrained supply chain

<p style='text-indent:20px;'>By applying Stackelberg game theory, this paper investigates the supply chain with a risk-neutral retailer and a risk-averse supplier, measuring risk-averse behavior by using conditional value-at-risk (CVaR). The equilibrium solutions of the supplier's wholesale price and the retailer's order quantity are obtained under two financing strategies: supplier financing (SF) and supplier investment (SI). It is found that the supplier's risk aversion is a crucial factor affecting both parties' financing decisions, and the supplier should offer different financing strategies to the retailer based on his risk attitude and the profit-sharing coefficient. However, the retailer prefers SF regardless of the supplier's risk aversion. Taking bank credit financing as a basic model, the advantages of SF and SI have been investigated. A Pareto improvement region for the two finance strategies has been identified and some suggestions are provided for the supplier's optimal utility. Then we extend to the situation that both parties are risk-averse and use the financing cost-sharing mechanism to achieve centralized decision-making.</p>

Production and Financing Strategies of a Distribution Channel under Random Yield and Random Demand

This study considers a distribution channel consisting of a manufacturer with capital constraint and uncertain yield and a retailer that faces random demand. To maintain production, the manufacturer can either (1) avail bank credit financing from a perfectly competitive market or (2) request advance payment from the retailer. First, we establish two Stackelberg game models under bank credit financing (BCF) and advance payment mechanism (APM). By comparing the equilibrium strategies of the two financing models and the optimal profits of channel members, we conclude that APM is more advantageous than BCF in terms of improving channel performance. Second, we design a revenue sharing (RS) contract based on APM to achieve channel coordination. Finally, numerical analysis is presented to verify the conclusions obtained in this study.

Mean-variance analysis of wholesale price contracts with a capital-constrained retailer: Trade credit financing vs. bank credit financing

This paper studies wholesale price contracts with risk constraints in a supply chain consisting of a supplier and a capital-constrained retailer. A newsvendor-like retailer may borrow from a bank or use trade credit to fund his business. We construct a mean-variance model to analyze the decisions involved in the design of the wholesale price contract under both trade credit financing and bank credit financing. We characterize the conditions under which the supplier is willing to provide trade credit and those under which the retailer prefers bank credit or trade credit. We find that the supply chain member's risk aversion attitude plays an important role in determining the financing equilibrium. Contrasting with some existing studies, our results show that trade credit financing may lead to a win-win result only when the supplier's risk aversion threshold is moderate.

Corporate Environmental Performance and Bank Credit Financing

Taking listed companies in heavy polluting industries in China from 2012 to 2018 as research samples, this paper examines the impact of corporate environmental performance on credit financing capacity. The results show that good environmental performance contributes to the improvement of corporate credit financing capacity, which is embodied in more new loans, lower loan rates, longer loan maturities, and less possibility of mortgage guarantee requirements.

Joint financing and ordering decisions in a capital-constrained supply chain with risk preference

We consider a two-echelon supply chain consisting of one dominant supplier and one capital-constrained retailer. The retailer needs to solve the shortage of working capital either from a bank or from its core supplier, which offers trade credit when it is also beneficial to itself. We assume the retailer is risk-averse behavior and the supplier has different risk preference behaviors that jointly model risk-averse, risk-neutral, and risk-taking. With a wholesale price contract, we incorporate each member’s risk preference behavior into its objective function. Then we derive the optimal decisions in a Stackelberg game under bank credit financing and trade credit financing, respectively. We find that there exists a supplier’s risk preference threshold that distinguishes financing scheme. When the supplier is a relatively higher risk preference, trade credit financing makes both the retailer and the supplier better off and is a unique financing equilibrium. Otherwise, the members prefer bank credit financing. Besides, the supplier with relatively higher risk preference behavior prefers the retailer with a low initial capital as a partner; the supplier with relatively lower risk preference behavior prefers the retailer with a higher initial capital level. The above theoretical results are verified by numerical analysis.

Corporate Social Responsibility and Unsecured Debt: Evidence from China

This study aims to investigate whether Corporate Social Responsibility (CSR) performance can help companies gain more bank unsecured loans. Additionally, this study analyzes the moderating effect of firm size and industry characteristics. Data was collected through the case of companies listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange in China between 2009 and 2018 with 5373 firmyear observations. The results of multivariable regression analysis show that good CSR performance exhibits a strong positive impact on unsecured debt, including short-term, long-term, and total unsecured debt, which indicates that corporate with good CSR performance can borrow more unsecured debt. further research shows that this effect is more pronounced for small enterprises and firms operating in heavy-polluting industries. Additionally, research on the impact mechanism finds that good CSR performance can help mitigate information asymmetry between borrower and lender, reduce moral hazard of borrower, and obtain support from key stakeholders, and therefore reduces the risk of default. The findings of this study suggest that firms with good CSR performance exhibit a preference for unsecured debt, but decline to provide collateral for debt. Overall, we emphasize and illustrate the important role of corporate CSR in bank credit financing.

Role of financial leasing in a capital-constrained service supply chain

Financial leasing (FL) has become a common solution to financing problems encountered by firms. The main difference between FL and some conventional supply chain financing strategies is the separation of ownership and the right of use of the equipment/products. This paper studies a service supply chain that consists of a capital-constrained downstream firm that provides service to consumers and an upstream firm that manufactures the equipment needed during the service process. The downstream firm has three alternative financing solutions, including FL, bank credit financing (BCF), and trade credit financing (TCF). In this study, game theoretical models are constructed to analyze and compare the optimal prices, order quantities, and profits in different financing scenarios. Results corroborate that FL outperforms other conventional financing strategies when the profitability of service provision is low or the premium revenue of the FL firm due to its better utilization of the equipment is relatively high. Moreover, the preference of the downstream firm on alternative financing models might not be exactly consistent with that of the upstream firm or the supply chain system. Under some conditions, the downstream firm prefers TCF to other strategies, while the upstream firm and the supply chain system is better off under FL. Furthermore, we extend our research to some general situations, e.g., endogenous interest rate in BCF, positive quantity of equipment endowed with the downstream firm, and integrated union of the upstream firm and the FL firm. Most of the results derived in the basic model can be further applied in most of the general situations.

Girişimciliğin Finansmanında Banka Finansmanına Karşı Risk Sermayesi: ODTÜ Teknokent Örneği1 (Venture Capital versus Bank Financing in the Finance of Entrepreneurship: The Case of METU Technopark)

Purpose – Today one of the most significant obstruction in front of entrepreneurship is the finance related problems. In addition to classical sources of finance such as bank credit financing, public and financial sectors are developing alternative sources of financing to eliminate this problem. Considering that the entrepreneurs of today are making technology-based initiatives, venture capital stands out as an important and powerful alternative. In this context the objective of the study is to compare the venture capital and bank finance usage of the firms located in the first technopark of Turkey, namely METU (Middle East Technical University) Technopark and to determine the factors that affect the usage of these two sources of finance. Design/methodology/approach – In line with the aforementioned objective survey method is utilized in the study. In this context survey is delivered to 281 firms of 376 operating in METU Technopark. Out of this 281 firms, 114 have accepted to participate in the survey. For the analysis of the data obtained through survey method SPSS and STATA software are utilized and descriptive statistics and Probit analysis are made. Findings – According to the findings of the research 58.8% of the firms use bank finance while 16.7% use venture capital. According to the results of the Probit analysis, the gender, age, trainings of entrepreneurship received and the level of bank finance knowledge of the entrepreneurs who have participated in the survey affect bank finance. On the other hand business experience, existence of an independent finance department at workplace and the level of both bank finance and venture capital knowledge affect the probability of using venture capital. Discussion – The literature on bank finance and venture capital and the results of the study reveal that bank finance as a source of financing is still in great demand for the entrepreneurs. However the findings assert that venture capital has a substantial potential for entrepreneurs.

How taxes impact bank and trade financing for Multinational Firms

Tax and capital play critical roles in the business of multinational firms. This study investigates the optimal financing strategy between bank credit financing and trade credit financing when a multinational firm invests in a capital-constrained retailer located in a low-tax jurisdiction. We find that tax differences and varying dividend rates have significant effects on a multinational firm's decisions. In a basic model, we show a tax-related dividends rate that is less than one but can eliminate double marginalization in bank credit. In trade credit, we find that the optimal wholesale price changes with tax and dividend rate. When both bank and trade credits are viable, we find that the differences in dividends rates and tax rates are two critical factors in determining the optimal strategy, and we investigate the joint effect of these rates on the optimal financing strategy. When examining the impact of tax asymmetry on both retailers’ and multinational firms’ decisions, under bank credit, multinational firms will reduce the wholesale price to induce higher orders, but they will never offer trade credit. When both bank and trade credits are viable alternatives, the optimal financing strategy is bank credit when tax asymmetry exists. Lastly, the production cost threshold value that separates the unique financing equilibrium is lower due to the impact of taxes. Our findings can offer financing insights to both multinational firms and capital-constrained divisions.

Optimal financing mode selection for a capital-constrained retailer under an implicit bankruptcy cost

In the context of the capital-constrained newsvendor problem under an implicit bankruptcy cost, we explore how such a cost affects a capital-constrained retailer’s financing mode selection decision between bank credit financing (BCF) and trade credit financing (TCF). We first study the problem in a single credit channel where the retailer can choose only one of the two financing modes. We find that the retailer prefers TCF to BCF only when the TCF interest rate (TCF-IR) is lower than a threshold, and the “dominant area” of TCF expands with increasing bankruptcy cost. We then study the problem in a dual credit channel where the retailer can choose a portfolio comprising BCF and TCF, and examine two repayment sequences, i.e., repaying BCF first, and vice versa. We propose two approaches to solve the problems. We find that if BCF is repaid first, as the TCF-IR increases from zero, the retailer first chooses only TCF, then a portfolio comprising BCF and TCF, and finally only BCF. On the other hand, if TCF is repaid first, the retailer always chooses the single credit channel (BCF or TCF) if the TCF-IR is not greater than a threshold or the bankruptcy cost is higher than a threshold; otherwise, a portfolio comprising BCF and TCF, or only BCF. Finally, we conduct numerical experiments to verify our main theoretical findings and examine the effects of the retailer’s internal capital endowment on its financing mode selection decision, showing that a wealthier retailer is more likely to prefer BCF to TCF.

Monetary policy tightening, accounting information comparability and bank borrowing

ABSTRACT This paper empirically tests the effect of accounting information comparability quality characteristic on the scale, the cost and the credit term structure of bank borrowing of the listed companies as well as whether accounting information comparability can affect the bank credit financing of the listed companies in the period of monetary policy tightening by utilising the data during 2005 to 2015 in Chinese Ａ -share market. This study finds that: Firstly, the higher of the accounting information comparability, the more of the scale of bank borrowing acquired, the lower of the cost of bank borrowing; Secondly, agent cost hypothesis and the signal transmission hypothesis exist simultaneously in the credit term structure of listed companies in China. For the listed companies with short-term credit structure, improving accounting information comparability will help extending that credit term structure, supporting the agent cost hypothesis. For the listed companies with long-term credit term structure, improving accounting information comparability will reduce that credit term structure, which provides the empirical evidence of the signal transmission hypothesis. Thirdly, in the monetary tightening period, improving accounting information comparability could effectively increase the amount of bank borrowing acquired, reduce the cost of bank borrowing and extend credit term structure (the listed companies with short-term credit structure). For the listed companies with long-term credit term structure, the listed companies with much higher accounting information comparability will weaken the motivation of releasing the ‘higher quality’ signal to the capital market, that is to say, the signal transmission effect is very likely to be constrained in the monetary tightening period. The conclusions of this paper enrich the economic consequences research of the accounting information comparability and expand the research on the interaction between macroeconomic policies and micro-financial behaviour of the corporate. Our results open up new horizons for the banks, the financial decision of listed companies and government department making decision.

Financing decisions in supply chains with a capital‐constrained manufacturer: competition and risk

AbstractSupply chain finance is a crucial topic. In this paper, we consider that a capital‐constrained manufacturer can borrow money from either a bank (bank credit financing) or a retailer (trade credit financing). Our analysis compares supply chain performance under these two financing schemes. Furthermore, we extend our model to evaluate the impacts of retail competition and supply chain member's risk aversion on supply chains, which consist of one capital‐constrained manufacturer and two competing retailers. We consider three financing schemes: only bank credit financing, dual trade credit financing, and bank and trade credit mix financing. We find that without retail competition, the retailer is always willing to use the trade credit financing; whereas with retail competition, if one retailer provides the trade credit but the other does not, the credit provider could receive the superior profit. Thus, providing an appropriate trade credit financing scheme is critically important for retailers. Moreover, we find that without retail competition, when a trade interest rate is relatively low, both the retailer and manufacturer could reach a win‐win situation in the trade credit financing. However, with retail competition, supply chain members (i.e., two retailers and one manufacturer) will not have an all‐win situation no matter which specific financing scheme is adopted and only a win‐win‐lose situation exists when using the credit mix financing scheme or the dual trade credit financing in supply chains. Last but not least, regardless of risk neutrality or aversion of supply chain members, their pricing decisions among three financing schemes are similar. This implies that the impacts of supply chain members’ risk aversion are limited in supply chain financing scheme selection. More managerial insights are discussed.

Financing online retailers: Bank vs. electronic business platform, equilibrium, and coordinating strategy

We consider a new financing source for online retailers, namely an electronic business (EB) platform, which is divided into an active and a conservative form according to the level of integration of lending and leasing businesses. The newsvendor-like online retailer is capital-constrained and can choose between EB platform financing and bank credit financing (BCF). We model their interaction as a Stackelberg game, where the online retailer functions as the follower who decides the order quantity and the lender (bank or EB platform) functions as the leader who declares the loan interest rate or the EB platform’s usage fee rate. From the equilibrium and coordinating analyses, we conclude that the active EB platform financing can achieve supply chain financing (SCF) coordination, yielding a larger order quantity and larger participants’ profits than those yielded through BCF, while the conservative may not. When the coordination condition on order quantity is satisfied, if the initial working capital is a constant, there exists a linear decreasing trend between the EB platform’s loan interest rate and the usage fee rate. When the weak coordination conditions are satisfied, the active EB platform can offer many coordinated financing contracts, which are applicable to different initial working capital conditions. For achieving SCF coordination, the EB platform should be active to adjust his loan interest rate and usage fee rate together. Moreover, even if the online retailer has sufficient working capital, she always prefers using the coordinated active EB platform financing to refusing any outside financing.

Manufacturer’s Financing Strategy in a Dual-Channel Supply Chain: Third-Party Platform, Bank and Retailer Credit Financing

Abstract The third-party platform channel has been widely used in addition to the traditional retail channel to sell products. In practice, some third-party platforms provide financing services to small businesses that sell products on them. However, few studies addressed the capital constraint problem faced by a manufacturer who sells products through both retailers and third-party platforms, especially when considering the third-party platform’s lending service behavior. This research establishes a model where a capital-constrained manufacturer sells products through a retailer and a third-party platform and may pursue a financing strategy by borrowing from the third-party platform (3PF), the retailer (RF), or the bank (BF). We investigate the impact of the third-party platform’s or retailer’s dual role—lending provider and channel participant—on dual-channel operational management and study the manufacturer’s financing strategy choices by comparing profits under different financing strategies. The results of our analysis show that for the manufacturer, the 3PF strategy is always better than the BF strategy. Furthermore, the manufacturer is more likely to prefer the RF strategy to the 3PF strategy as the channel competition increases or as the revenue sharing rate or unit production cost decreases. We also find that the retailer’s retail price increases as the revenue sharing rate increases if there is no capital constraint, but it decreases under the BF and 3PF strategies. This indicates that the manufacturer’s financing behavior has a significant impact on the retailer’s retail price decision. We extend our model by considering random demand and find that these findings continue to hold when the potential demand equals its expected value.

Capacity Governance and Rebalance of Debt Structure: From the Perspective of the Relationship between Trade Credit and Bank Credit

During the period of 2003-2015, the relationship of trade credit and bank credit financing of Chinese industrial enterprises above a designated size showed a significant complementary” growth pattern, being in sharp contrast to the extrude expectation under traditional alternative financing” theory. Although the complementary patter can be explained by traditional signaling theory”, this theory still does not sufficiently explain why trade credit grows in units combing with much more growth of bank credit, and why enterprise debt structure increasingly skews towards bank credit, especially when the GFC led the bank sector to a renewed bout of risk aversion and reduced the willingness of commercial banks to identify the signaling effect”. The above background determines the following research tasks. Firstly, in addition to the western signaling effect” hypothesis, how to construct a new complementation logic （e.g. capacity-driven hypothesis） is studied to explain why the relationship between bank credit and trade credit is dynamically transformed from substitution to complementation, and why bank credit, instead of being crowding out, eventually takes on more radical growth, which in turn leads to firm debt structure shifting toward bank loans. These introspections contribute to the localization interpretation of corporate debt structure distortion as well as to the formation mechanism of the rising level of bank credit dependence. Secondly, by observing the evolution characteristics （e.g. threshold value, magnitude of complementation coefficient） of corporate debt structure imbalance through subgroup tests and comparing their coefficient differences, the determinants which are able to adjust firms’ bank credit dependence and rebalance firm debt structure can be found out. These introspections contribute to the optimization of credit policies that aim to optimize firm debt structure, and correct firms’ bank credit distortion. On the basis of a literature review and the introspection of complementary logic, this paper puts forward the capacity-driven hypothesis”, and investigates the determinants of firm debt structure distortion by introducing adjustment cost and RD （2） it reveals, through the introspection and empirical subgroup test, the impacts of R&D investment and adjustment costs on reducing offset of financial structure. This facilitates the optimization of credit policy.