Optimal Valuation of Retailer Equity Financing Based on Gambling Agreements in Centralized Supply Chain

Abstract

This paper explores the issue of optimal valuation of retailer equity financing based on gambling agreements in a centralized supply chain. Firstly, the betting target settings are classified into three cases: high, medium, and low. Secondly, the optimal valuation models for retailer equity financing in a centralized supply chain without and with introducing a gambling agreement are constructed separately. Finally, this paper clarifies the relationships among factors such as the betting transfer share ratio, ordering price, and optimal valuation level through simulation analysis. The results illustrate the following: (i) There is always an only optimal valuation level and optimal effort level that makes the retailer and supplier might reach an equity financing agreement. (ii) When the betting target is set too high, the betting transfer share ratio varies in the same direction as the optimal valuation level and the opposite direction as the optimal effort level. (iii) When the betting target is set moderately or too low, the betting transfer share ratio has an inverse relationship with the optimal valuation level. However, the retailer will increase its effort level at this time. (iv) In addition, the optimal valuation level is affected by the retailer’s firm growth and ordering price.