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Optimal portfolio financing selection in a capital-constrained supply chain with risk-averse members

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  • Honglin Yang
  • Zhiyuan Zhen
  • Hong Wan

Abstract

We first consider a supplier-retailer supply chain in which only the capital-constrained retailer is risk-averse while the supplier and the bank both are risk-neutral. The newsvendor-like retailer may fund its business by two portfolio financing schemes to satisfy uncertain market demand: (1) bank loans and the supplier’s equity investment (BCF-SI) and (2) bank loans and the supplier’s credit guarantee (BCF-SG). Using CVaR criterion, we model the behaviour of the risk-averse retailer to analytically derive the portfolio financing equilibrium in a Stackelberg supplier-led game separately for two portfolio financing schemes. We characterize the conditions under which the supplier and the retailer reach Pareto improvement under two portfolio financing schemes compared with the non-financing benchmark. Moreover, we extend the model to the case in that the supplier and retailer both are risk-averse while only the bank is risk-neutral to further investigate the impact of risk aversion on the optimal financing scheme selection. The numerical examples verify our theoretical results.

Suggested Citation

  • Honglin Yang & Zhiyuan Zhen & Hong Wan, 2021. "Optimal portfolio financing selection in a capital-constrained supply chain with risk-averse members," Applied Economics, Taylor & Francis Journals, vol. 53(41), pages 4713-4733, September.
    • Handle: RePEc:taf:applec:v:53:y:2021:i:41:p:4713-4733
    DOI: 10.1080/00036846.2021.1907286
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    Cited by:

    1. Zhen, Zhiyuan & Jiang, Lan & Yan, Qiang, 2024. "The evolution of portfolio financing equilibrium in a risk-averse supply chain under a partial trade credit policy," Finance Research Letters, Elsevier, vol. 62(PA).

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