The Impact of Working Capital Financing Costs on the Efficiency of Trade Credit. Issue 4 (8th November 2018)

• Record Type: Journal Article
• Authors: Devalkar, Sripad K.; Krishnan, Harish
• Is Part Of: Production and operations management. Volume 28:Issue 4(2019)
• Page Start: 878
• Page End: 889
• Publication Date: 2018-11-08
• Subjects: trade credit -- moral hazard -- supply chain finance -- reverse factoring; Production management -- Periodicals; 658.505
• DOI: 10.1111/poms.12954
• Languages: English
• ISSNs: 1059-1478

Abstract

Abstract : We consider how trade credit can coordinate a two‐echelon supply chain in the presence of supplier moral hazard and costly working capital financing. While trade credit resolves moral hazard problems in the absence of working capital financing costs, we show that this is not necessarily true when financial frictions make financing trade credit costly. We then show that trade credit along with an appropriately designed reverse factoring program can restore supply chain efficiency.