Trade credit contracting under asymmetric credit default risk: Screening, checking or insurance

Wang, Kai; Zhao, Ruiqing; Peng, Jin

doi:10.1016/j.ejor.2017.10.004

Cited by 62 publications

(37 citation statements)

References 40 publications

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“…Prior studies show that a trade credit debtor (customer) in a bankruptcy process will almost certainly fail to meet the claims of its trade creditors (suppliers), thereby causing credit losses (Jacobson and von Schedvin 2015;Wang et al 2018). Consistent with this argument, the researchers conclude that such credit losses could, in turn, influence trading creditors to become insolvent and subsequently go bankrupt.…”

Section: Introductionmentioning

confidence: 72%

“…Sellers use a variety of promotional tools to increase sales. One of these is the trade credit (Afrifa and Gyapong 2017;Wang et al 2018), which benefits both the seller and the buyer. Trade credit is "debt arising from credit sales and recorded as an account receivable by the seller and as an account payable by the buyer" (Brigham and Houston 2004).…”

Section: Introductionmentioning

confidence: 99%

“…Trade credit is "debt arising from credit sales and recorded as an account receivable by the seller and as an account payable by the buyer" (Brigham and Houston 2004). On the one hand, according to Wang et al (2018), "trade credit has grown rapidly and become an effective tool to incentivize suppliers to increase sales and profits in supply chain management". Fabbri and Klapper (2016) state that "the traditional explanation for the existence of trade credit is that trade credit plays a nonfinancial role".…”

Section: Introductionmentioning

confidence: 99%

“…From the supplier's perspective, according to Wang et al (2018), by providing trade credits, the supplier encourages customers to buy more and thus increases his/her profits. However, on the other hand, the granting of trade credits increases the default risk of the suppliers themselves.…”

Section: Introductionmentioning

confidence: 99%

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Credit Risk Assessment Model for Small and Micro-Enterprises: The Case of Lithuania

Kanapickienė

Špicas²

2019

Risks

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In this research, trade credit is analysed form a seller (supplier) perspective. Trade credit allows the supplier to increase sales and profits but creates the risk that the customer will not pay, and at the same time increases the risk of the supplier’s insolvency. If the supplier is a small or micro-enterprise (SMiE), it is usually an issue of human and technical resources. Therefore, when dealing with these issues, the supplier needs a high accuracy but simple and highly interpretable trade credit risk assessment model that allows for assessing the risk of insolvency of buyers (who are usually SMiE). The aim of the research is to create a statistical enterprise trade credit risk assessment (ETCRA) model for Lithuanian small and micro-enterprises (SMiE). In the empirical analysis, the financial and non-financial data of 734 small and micro-sized enterprises in the period of 2010–2012 were chosen as the samples. Based on the logistic regression, the ETCRA model was developed using financial and non-financial variables. In the ETCRA model, the enterprise’s financial performance is assessed from different perspectives: profitability, liquidity, solvency, and activity. Varied model variants have been created using (i) only financial ratios and (ii) financial ratios and non-financial variables. Moreover, the inclusion of non-financial variables in the model does not substantially improve the characteristics of the model. This means that the models that use only financial ratios can be used in practice, and the models that include non-financial variables can also be used. The designed models can be used by suppliers when making decisions of granting a trade credit for small or micro-enterprises.

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Section: Introductionmentioning

confidence: 72%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Credit Risk Assessment Model for Small and Micro-Enterprises: The Case of Lithuania

Kanapickienė

Špicas²

2019

Risks

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“…However, there is also asymmetric information in trade credit. The adverse selection has been considered in previous studies, such as Wang (2018), in which the asymmetric credit default risk was discussed [32]. But moral hazard has not been widely considered.…”

Section: Complexitymentioning

confidence: 99%

The Incentive Model in Supply Chain with Trade Credit and Default Risk

Hong

Yan

et al. 2019

Complexity

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Trade credit is widely used for its advantages. However, trade credit also brings default risk to the manufacturer due to the uncertain demand. And moral hazard may aggravate the default risk. The purpose of this paper is to investigate the role of moral hazard in trade credit and explore incentive contract under uncertain demand and asymmetric information. We consider a two-echelon supply chain consisting of a risk-neutral retailer ordering a single product from a risk-neutral manufacturer. Market demand is stochastic and is influenced by retailer’s sales effort which is his private information. Incentive theory is used to develop the principal-agent model and get the incentive contract from the manufacturer’s perspective. Results show that the retailer will reduce his effort level to get more profit and the manufacturer’s profit will be reduced, in the case of asymmetric information. Facing this result, the manufacturer will reduce the order quantity in incentive contract to lessen his losses. Numerical examples are provided to illustrate all these theoretical results and to draw managerial insights.

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Financing decision for an emission‐dependent supply chain with capital constraints

Zheng

et al. 2022

Int J of Intelligent Sys

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In this paper, we study the financing decision for an emission-dependent supply chain with one supplier and one manufacturer, both of which are financially constrained and in need of short-term financing for emission abatement. Three kinds of financing strategies are considered: (1) bank financing separately (BFS), (2) the manufacturer obtains partial loans from the bank, and borrows from the supplier (MPB), (3) the supplier obtains partial loans from the bank, and borrows from the manufacturer (SPB). The BFS is viewed as a noncollaborative financing strategy, and the MPB and SPB are collaborative financing strategies.The financing strategies are obtained at the point where wholesale price, production quantity, and emission reduction are endogenously determined. We found that the collaborative financing strategy is beneficial to the supplier and the whole supply chain compared with the noncollaborative financing strategy, the SPB strategy may outperform the MPB strategy for the supplier and the whole supply chain, depending on sharing proportion. The advantage of the MPB and SPB strategies relative to the BFS strategy mainly depends on sharing proportion from the manufacturer's perspective. We demonstrated that the collaborative financing strategy is the equilibrium strategy of the

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Trade credit contracting under asymmetric credit default risk: Screening, checking or insurance

Cited by 62 publications

References 40 publications

Credit Risk Assessment Model for Small and Micro-Enterprises: The Case of Lithuania

Credit Risk Assessment Model for Small and Micro-Enterprises: The Case of Lithuania

The Incentive Model in Supply Chain with Trade Credit and Default Risk

Financing decision for an emission‐dependent supply chain with capital constraints

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