The impact of working capital management on credit rating

This study investigates the possible nonlinear relationship between working capital and credit rating.Furthermore,it examines the relationship between the three components of working capital(inventory,accounts receivable,and accounts payable)and a firm’s credit rating.Employing data for U.S listed firms for the period between 1985 and 2017,the results of our ordered probit model show a nonlinear relationship between working capital and its components and credit rating.Finally,we find that the deviation from the optimal working capital adversely affects the credit rating.The results of this study are of significant importance for policy makers,managers,decision makers,and credit-rating agencies,as they help highlight the importance of working capital management for a firm’s credit rating.

Trade credit financing for supply chain coordination under financial challenges:a multi‑leader–follower game approach

This study is designed to solve supply chain inefficiencies caused by some members’financial problems,such as capital shortages and financing restrictions in a stochastic environment.To this end,we have established a supply chain finance framework by designing two novel coordinating contracts based on trade credit financing for different problem settings.These contracts are modeled in the form of multi-leader Stackelberg games that address horizontal and vertical competition in a supply chain consisting of multiple suppliers and a financially constrained manufacturer.However,previous studies in the trade credit literature have addressed only simple vertical competition,that is,seller-buyer competition.To solve the proposed models,two algorithms were developed by combining population-based metaheuristics,the Nash-domination concept,and the Nikaido-Isoda function.The results demonstrate that the proposed supply chain finance framework can eliminate supply chain inefficiencies and make a large profit for suppliers,as well as the financially constrained manufacturer.Furthermore,the results of the contracts’analysis showed that if the manufacturer is required to settle its payments to suppliers before the end of the period,the trade credit contract cannot coordinate the supply chain because of a lack of incentive for suppliers.However,if the manufacturer is allowed to extend its payments to the end of the period,the proposed trade credit financing contract can coordinate the supply chain.Finally,the sensitivity analysis results indicate that the worse the financial status of the manufacturer,the more bargaining power suppliers have in determining the contract parameters for more profit.

Determining threshold default risk criterion for trade credit granting

To solve the problem of setting threshold default risk criterion to select retailer eligible for trade credit granting, a novel method of solving simultaneous equations is proposed. This method is based on the bilevel programming modeling of trade credit decisions as an interaction between supplier and retailer. First, the bilevel programming is set up where the supplier decides on credit terms at the top level considering a retailer's default risk, and the retailer determines the order quantity at the lower level in response to the credit terms offered. By solving this bilevel programming, the relationship between the optimal terms and the corresponding default risk can be derived. Second, set the extreme scenario where the threshold default risk is approached as the point causing a zero marginal profit to the supplier. Another equation describing this particular scenario can also be derived. Thus, a system of two equations with two unknown variables can be obtained where the exact threshold default risk criterion can be found by solving them. A numerical example is presented as an illustration of the method proposed. It shows that the threshold criterion can be uniquely determined when the financial costs, inventory costs, and the marketing parameters of supplier and buyer are specified.

Trade Credit in the Crisis： Selling or Financing？

The work investigates the use of trade credit in Italy for reasons of a financial nature. The analysis considers Italian small and medium-sized enterprises （SMEs） and investigates, over the years of 2009-2011： the existence of functional relationships between the incidence of trade receivables and payables and corporate profitability; the existence of interdependencies between trade credit policy and trade debt policy; and the coexistence of interchangeable and complementary conditions between trade debts and bank loans and other sources of funding. To verify the research hypotheses, linear regression models on a yearly basis are used and these models are put under observation over the years of 2009-2011. We can conclude that there are interdependencies between trade credit policy and trade debt policy and that trade credit is a source of flexible way of financing, also available in periods of crisis, which has a positive effect on the profitability of SMEs and can be utilized as a complementary and substitute source of financing to bank loans.

The governance Effect of Heterogeneous Debts on Over-investment: Evidence from China

This paper sets out to observe the governance effect of the heterogeneous debts on the overinvestment behavior by Chinese companies.On this basis,the authors examined the different relationships between heterogeneous debts and over-investment.The study results indicate that various types of debt have different governance effect on over-investment.Trade credit can curb over-investment effectively and bank loans may exacerbate over-investment.

EPQ model with the effect of inflation and reliability for partial trade credit under fuzzy and cloudy fuzzy environment

The proposed study offers the first-of-its-kind economic production quantity model for deteriorating items having a demand rate to be price dependent under the effect of inflation and reliability with partial trade credit.The model is extended under an uncertain environment by assuming inventory parameters to be triangular fuzzy numbers and cloudy triangular fuzzy numbers.The objective of the study is to maximize the profit of the inventory system and to identify the most suitable environment for the proposed problem.Results are verified using the numerical study.Furthermore,the comparative study is presented to justify the nature of fuzzy and cloudy fuzzy environments.Sensitivity analysis under all environments is conducted to identify the most sensitive parameters of all.

Analysis of Typical Automakers’ Strategies for Meeting the Dual-Credit Regulations Regarding CAFC and NEVs

The parallel corporate average fuel consumption(CAFC)and new energy vehicle(NEV)credit schemes that have been introduced by the Ministry of Industry and Information Technology of China is an innovative attempt to simultaneously regulate conventional gasoline vehicles(CGVs)and NEVs in the passenger vehicle sector that is expected to function as a long-term management mechanism for CGVs to be more energy-efficient and NEVs to be well-promoted.This will have a significant impact on trends in China’s automotive industry and automakers’business decisions.Taking the cases of four typical automakers with different levels of average fuel economy in their CGVs and advanced NEV production,scenario analysis has been applied to generate these automakers’alternatives in relation to compliance with the dual-credit regulations in force from 2017 to 2020 based on the Interim Measures on the Joint Management of CAFC and NEV Credits(Draft).These automakers’alternative approaches to compliance are compared.Further,in view of the financial losses as a result of halted production if they fail to comply,the values of CAFC and NEV credits and corresponding influencing factors are analyzed from the automakers’perspective.Finally,the most cost-effective compliance strategies for these automakers are summarized and suggested improvements in the regulations are proposed for the government.

OPTIMAL OPERATIONAL DECISIONS WHEN A MANUFACTURER OFFERS TRADE CREDIT TO HIS RETAILER

In this paper, we develop models to determine operational and financial decisions of a supply chain under the condition that the retailer faces a financial constraint and the manufacturer can offer trade credit to assist the retailer. We first study the case where the retailer is risk-neutral, and derive the optimal ordering and financial decisions. Then, the case where the retailer is risk-averse （downside risk） is studied and-the effects of the risk on the retailer and manufacturer＇s operational and financial decisions are discussed. Finally, numerical examples are provided to conduct managerial analysis.

Optimal ordering policy for short life-cycle products under credit financing with dynamic adoption in supply chain

Traditional inventory models are mostly ignorant of the life cycle dynamics of a technology product;hence,they often fail to identify different dimensions of inventory research.This paper attempts to investigate the relationship between adoption behavior of customers using life cycle dynamics and associated trade credit policies in order to optimize the total inventory cost.The demand model used in this paper treats sales as a function of awareness diffusion and adoption.Awareness is considered as a function of feedback effects from users/customers.Retailer’s optimal strategies for short life cycle product under credit financing were determined analytically.Finally,numerical examples have been used to support the theoretical results.Theoretical results have further been used to gain some managerial insights.

Two-warehouse inventory model for non-instantaneous deteriorating items with optimal credit period and partial backlogging under inflation

This paper analyses an inventory model for non-instantaneous deteriorating items under a two-warehouse system with the effect of inflation and time value of money.We propose the model from the seller’s prospective by incorporating the fact that granting the trade credit from the seller to its buyer not only increases sales and revenue but also opportunity cost and default risk.Moreover,in this model,shortages are allowed and partially backlogged.The backlogging rate is dependent on the waiting time for the next replenishment.The purpose of this study is to determine the optimal credit period and the optimal order quantity such that the total profit of the seller is maximised.Some numerical examples are presented for illustrating the proposed inventory model.Furthermore,sensitivity analysis of the optimal solutions with respect to major parameters is carried out and some managerial inferences are obtained.

Trade Credit, Future Earnings, and Stock Returns: A Self-Dealing Perspective

Chinese listed firms are characterized by a great magnitude of long-duration accounts receivable from controlling shareholders and their affiliates,and they often do not make bad debt allowances.On many occasions,these receivables are never collected.We find that firms with a great magnitude of accounts receivable demonstrate a low level of future profitability and low stock returns.It does not appear that the low earnings persistence of these firms is responsible for their poor future performance as predicted by the accrual anomaly,because the firms also report low concurrent earnings.In the context of the Chinese stock market,we interpret the results as being consistent with self-dealing through trade credit by controlling shareholders.This study contributes to the self-dealing literature by identifying a more subtle channel of expropriation of minority shareholders in China.

Trade Credit Policy Between Supplier-Manufacturer-Retailer for Ameliorating/Deteriorating Items

This paper is related to the advancement of the inventory models for ameliorating items and focused on the real-life business situation as with the time the deterioration rate of ameliorating items is increased.In the global world,every supply chain entities as suppliers/manufacturers/retailers want to increase the consumption of their goods without any losses.For this,he/she tries to lure manufacturer/retailers by offering some discounts,i.e.credit period for settling the account.The problem states that the manufacturer purchases the ameliorating items from the supplier,where the supplier offers his/her credit period to settle the account.The manufacturer purchases ameliorating items(like pigs,fishes,ducklings,etc.)and take those items as rawmaterial;when the livestock matures the manufacturer sells it to the retailer and offer credit time for settling the account.Reason to propose the model is when the quantities of livestock become larger,then the manufacturer faces difficulty in maintaining all the livestock.In such a situation,the traditional method(without offering credit period)fails to provide the maximum profit to the manufacturer.Therefore,in order to get maximum profit,the manufacturer needs some more realistic scientific outlook for making decisions.The proposed model provides a more realistic assumption of business markets,by offering credit policy.In the introduced model,manufacturer faces amelioration and deterioration rate simultaneously due to the growth and the death of livestock.The amelioration and deterioration rates are assumed as theWeibull distribution type.Shortages allowed only for the retailer,which is partially backlogged.The main goal of this paper is to minimize the total relevant inventory cost for both the manufacturer and the retailers,by finding the optimal replenishment policy.Themathematical formulation with optimal solutions for manufacturer and retailers are given.Convexity and existence of the proposed model via numerical examples and graphical representations are explained.Finally,the conclusions with some future research direction are discussed.

Decaying items inventory models with partial linked-to-order upstream trade credit and downstream full trade credit

In practice,any member of supply chain may offer full or partial trade credit contract to his downstream level.Full trade credit is the case that the latter is allowed to defer whole payment to the end of credit period.In partial trade credit,however,the downstream supply chain member must pay for a proportion of the purchased goods at first,and can delay paying for the rest until the end of credit period.This paper considers a two-level trade credit,where the supplier offers order-quantity-dependent partial trade credit to a retailer,who suggests full trade credit to his customers.An economic order quantity(EOQ)inventory model of a deteriorating item with expiration dates is formulated here.Theoretical results are developed to obtain the optimal solutions to the problem.Numerical examples and sensitivity analysis are performed to justify the proposed models and theoretical results and managerial insights are provided.

Optimizing order policy and credit term for items with inventory-level-dependent demand under trade credit limit

Under the combined effects of inventory-level-dependent demand(ILDD)and trade credit,the retailer is able to order more quantities to stimulate market demand.However,from the supplier's perspective,two important issues are lacking sufficient attention.First,during the credit period,the retailer's higher order quantities imply increases in both the retailer's account payable and the supplier's opportunity cost of capital.Second,given the supplier's fixed production rate,the increased market demand may drive the capacity utilization to be variable.Thus,by formulating a supplier-dominated system,this paper incorporates trade credit limit(TCL)to address its effects on optimal policies vis-a-vis the item with ILDD.Specifically,three indicators can be proposed to reveal which type of financing policy the retailer should choose.Moreover,based on TCL,the supplier can effectively manage the retailer's order quantity and the corresponding account payable.Additionally,the retailer's maximum allowable order quantity is developed to ensure that the supplier can supply the retailer's order quantity on time.Furthermore,when the effects of ILDD become more significant,the manufacturer will reduce the maximum allowable order quantity to control the retailer's order incentive.

An inventory model with finite replenishment,probabilistic deterioration and permissible delay in payments

This paper develops an inventory model for deteriorating items with finite replenishment rate under a progressive payment scheme within the cycle time.In this model,the deterioration function follows a probability distribution such as a(1)uniform distribution,(2)triangular distribution or(3)beta distribution.Here,the retailer is allowed a trade-credit offer by the supplier to buy more items.This model aids in minimizing the total inventory cost of the retailer by finding the optimal cycle length,the optimal time length of replenishment and the optimal order quantity.Some theorems have been framed to characterize the optimal solutions.The necessary and sufficient conditions of the existence and uniqueness of the optimal solutions are also provided.The optimal solution of the model is illustrated with the help of numerical examples,and numerical comparisons between the three models are also given.Finally,sensitivity analysis and graphical representations are given to demonstrate the model.

Monetary policy, financial development and the financing of zombie firms: evidence from China

This paper examines the financing channels for zombie firms in China.We find that equity markets and suppliers provide substan-tial financing support for zombie firms,while banks and other financing channels are less important.We also find that the amount of investment does not increase accordingly after zombie firms obtain external financing,which indicates an inefficient use of funds by these zombie firms.Our results are robust to various definitions of zombie firms,and also to a propensity score match-ing method.

How Does Debt Structure Influence Stock Price Crash Risk?

This paper uses the financial data of Chinese listed firms to explore the relationship between the debt structure, which is measured as the ratio of trade credit to bank loan, and future stock price crash risk. The empirical results show that the ratio of trade credit to bank loan is positively associated with the firm-specific crash risk while a good institutional environment reduces this positive relationship. In addition, considering the firm＇s ownership type, the authors find that the positive relationship between the debt structure and crash risk is more significant in the SOEs.

Financing the price-setting newsvendor with sales effort

In this paper,we consider the financing issues in a supply chain where the capitalconstrained retailer should use limited funds to pay for both order and sales.The retailer decides the retail price,order quantity exante and sales effort expost,and he supports these operational activities by two financing sources:bank loan and trade credit.We illustrate that in this two-stage problem,the price-setting retailer’s equilibrium sales effort and retail price are both related to the market realization value and the retailer’s cash level.These two financing sources are both able to stimulate the retailer to promote sales.If the retailer’s cash level is reasonably high,both parties(supplier and retailer)benefit from trade credit.By contrast,if the retailer’s cash level is low,trade credit may discourage the retailer from sales promotion.Counterintuitively,our study shows that the retailer spends more on sales when the market is good than when it is bad.