The Impact of Working Capital Financing Costs on the Efficiency of Trade Credit

Devalkar, S K and Krishnan, H (2018) The Impact of Working Capital Financing Costs on the Efficiency of Trade Credit. Production and Operations Management.

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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.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Devalkar, S Khttp://orcid.org/0000-0002-3708-9104
Item Type: Article
Uncontrolled Keywords: trade credit, moral hazard, supply chain finance, reverse factoring
Subjects: Operations Management
Operations Management > Product Development
Depositing User: Veeramani R
Date Deposited: 01 Apr 2019 09:32
Last Modified: 01 Apr 2019 09:32
URI: http://eprints.exchange.isb.edu/id/eprint/729
Publisher URL: https://doi.org/10.1111/poms.12954
Publisher OA policy: http://sherpa.mimas.ac.uk/romeo/issn/1059-1478/
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