Financing suppliers under performance risk

Tang, C S, Yang, S A and Wu, J (2019) Financing suppliers under performance risk. Foundations and Trends in Technology, Information and Operations Management, 12 (2-3). pp. 135-151. ISSN 1571-9553

Abstract

This chapter focuses on the relative efficiency of two innovation pre-shipment financing schemes that enable suppliers to obtain financing for production: purchase order financing (POF, under which financial institutions offer loans to suppliers by considering the value of purchase orders) and buyer direct financing (BDF, under which manufacturers lend directly to suppliers). Both schemes are closely related to suppliers’ performance risk (whether the supplier can deliver the order successfully). When the manufacturer and the bank have symmetric information regarding the supplier’s operational capabilitiy, we find that even though POF and BDF yield the same payoffs, BDF allows more flexibility in contract terms. However, when the manufacturer has superior information, BDF leads to higher payoffs when the supplier is severely financially constrained. The relative benefit of BDF is more pronounced when the supply market contains a larger fraction of inefficient suppliers, when efficiency gaps between suppliers are greater, or when the manufacturer’s alternative sourcing option is more expensive.

More Details

Item Type: Article
Subject Areas: Management Science and Operations
Additional Information: © 2019 now publishers inc. The final publication is available from now publishers via http://dx.doi.org/10.1561/0200000091
Subjects: S > Supply chain management
O > Operations planning and control
F > Financial risk
Date Deposited: 22 Mar 2019 11:25
Last Modified: 11 Aug 2019 12:11
URI: http://lbsresearch.london.edu/id/eprint/1114
More

Export and Share


Download

Accepted Version - Text
  • Restricted to Repository staff only

Statistics

Altmetrics
View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item