Author
Listed:
- Jiajing Li
- Shuhua Zhang
- Pengwen Hou
Abstract
Based on the policy incentives for equity financing and firms' awareness of managing supply disruption risk, this paper examines a two-tier supply chain. A large manufacturer can purchase products either from a capital-constrained unreliable supplier who has disruption risk or a reliable backup supplier with a higher cost. We investigate the value and interactive use of the backup supplier and equity financing on firms' performances. The results show both the backup supplier and equity financing alone can always benefit the manufacturer, but the unreliable supplier can become worse off. However, when the backup supplier and equity financing interact, their impact changes dramatically. Under equity financing, the backup supplier can make the unreliable supplier better, and the effect of the backup supplier on disruption risk management differs with different wholesale prices. Moreover, with a backup supplier, equity financing can benefit both the manufacturer and the unreliable supplier. Specifically, with the backup supplier, the unreliable supplier can lose all autonomy on whether or not to raise equity financing. Then, the manufacturer and unreliable supplier can achieve Pareto optimality due to ‘bidirectional free riding’. These insights provide strategic guidance for product ordering, enabling firms to manage disruption risk better and achieve high profitability.
Suggested Citation
Jiajing Li & Shuhua Zhang & Pengwen Hou, 2024.
"The value of backup supply for mitigating disruption risk with equity finance,"
International Journal of Production Research, Taylor & Francis Journals, vol. 62(23), pages 8415-8442, December.
Handle:
RePEc:taf:tprsxx:v:62:y:2024:i:23:p:8415-8442
DOI: 10.1080/00207543.2024.2342022
Download full text from publisher
As the access to this document is restricted, you may want to search for a different version of it.
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:tprsxx:v:62:y:2024:i:23:p:8415-8442. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TPRS20 .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.