Optimization on Loan-to-value Ratios of Port’s Inventory Financing: Effects of Risk Aversion and Decision Preference

Under inventory financing mode, port offers joint logistics and financial services to a capital-constrained cargo-owner whose cargos are taken as collaterals. Port takes financial risk while gaining profit from both traditional logistics and derived financial services. This paper adopts Mean-CVaR criterion to formulate objective function and derive the equilibrium loan-to-value ratio. The Mean-CVaR model proposed in this article depicts risk-aversion attitude and decision preference of port under the uncertainty of collateral’s demand. The result shows that there is a positive relation between decision preference and loan-to-value ratio. The growth in risk aversion attitude prompts port to act cautiously by reducing the loan-to-value ratio.

Strategy selection of inventory financing based on overconfident retailer

<p style='text-indent:20px;'>Overconfidence of financing enterprises in market demand will have a significant impact on their business decision-making and banks' decision-making. This paper constructs the demand function based on the retailer's overconfidence and establishes the profit functions of the retailer and the bank respectively. Through Stackelberg game analysis, the influence of the retailer's overconfidence on each decision variable can be analyzed. The study has the following findings. Firstly, overconfidence makes decision-making deviate from rational decision-making. Secondly, the relationship between loan-to-value ratio and overconfidence is affected by different factors when the banks know the market or do not understand the market. Thirdly, the relationship between retailer's default probability and overconfidence is different when the bank doesn't know the market or knows the market. Fourthly, when the bank does not understand the market but listen to the overconfident retailer's market analysis, he should choose fixed loan-to-value ratio for financing. The overconfident retailer can ask the bank to give a higher loan-to-value ratio to reduce the capital pressure. Fifthly, when the bank conducts market research, the bank should choose the variable loan-to-value ratio contract for financing, while the retailer only needs to make decisions according to the bank's lending strategy.</p>

Towards a framework on the factors conditioning the role of logistics service providers in the provision of inventory financing

PurposeThis paper explores the conditions in which logistics service providers (LSPs) can compete or collaborate with banks in offering inventory financing as a supply chain finance (SCF) service.Design/methodology/approachA multiple case study research methodology was adopted. The case study involved six LSPs across Europe. Data were collected through semi-structured interviews.FindingsThe results highlighted that an attractive credit demand for LSPs consists in suppliers with high amounts of inventory or borrowing needs that go beyond their borrowing capacity from the perspective of a bank. LSPs can respond to this demand when they have three specific capabilities as follows: risk assessment, risk monitoring and organizational capabilities. The offer of inventory financing can be controlled by the LSPs or by the banks. When the LSPs control the offer, they offer different conditions compared to the banks in terms of credit rationing, transaction costs, payment flexibility, tax rate advantage and financial risk management. When the banks control the offer, the LSPs influence the nature of the SCF services only in terms of credit rationing and transaction costs. The LSPs seem to easily develop risk assessment and risk mitigation capabilities, while the organisational capabilities appear to be the most challenging to build, and when absent they create a barrier to the provision of inventory financing.Originality/valueThe value of the paper is twofold. First, the paper provides a comprehensive taxonomy of the factors conditioning the role of the LSPs in the provision of inventory financing as a SCF service. Second, the paper clarifies the link between the factors and the different roles played by the LSPs.

Inventory financing a risk-averse newsvendor with strategic default

PurposeThe paper aims to explore the optimal strategies of inventory financing when the risk-averse retailer has different objectives, in the presence of multi-risk, i.e. demand risk, non-operational risk and retailer's strategic default risk.Design/methodology/approachThis paper develops an inventory financing model consisting of a bank and a risk-averse retailer with strategic default. This paper considers two scenarios, i.e. the capital-constrained retailer cares about its profit or firm value. In the first scenario, the bank acts as a Stackelberg leader determining its interest rate, and the retailer acts as a follower determining its pledged quantity. In the second one, the bank capital market is perfectly competitive. Lagrange multiplier method is adopted to solve the optimization.FindingsThe optimal strategies in inventory financing scheme in two scenarios are derived. Only when the initial stock is relatively high, the retailer pledges part of the initial stock. Retailer's risk aversion reduces its pledged quantity and performance. The strategic default reduces its profit. When it is relatively high, the bank refuses to offer the loan.Practical implicationsAnalytical inventory and financing strategies are specified to help retailers and banks to better understand the interaction of finance and operations management and to better respond to multi-risk.Originality/valueNew results and managerial insights are derived by incorporating partially endogenous strategic default and risk aversion into inventory financing, which enriches the interfaces of operations management and finance.

Supply chain finance solutions in joint working capital management

The research is devoted to joint working capital management in supply chains aiming to improve joint working capital management methods through minimization of financial supply chain costs on working capital using Supply Chain Finance (SCF) Solutions. Though SCF applicability in Financial Supply Chain management has recently been studied to relieve access to capital sources, managerial perspective of SCF solutions is still uninvestigated as well as few other areas. The research suggests a managerial algorithm that contains four developed models: the model of Collaborative cash conversion cycle two models of SCF solutions and the model of Joint Working Capital optimization. The models imply using such SCF solutions as Factoring, Reverse Factoring and Inventory Financing to improve Joint Working Capital in terms of costs on it and liquidity of both supply chain members and entire chain, providing the optimal conditions of SCF solutions. Quantitative optimization with SCF solutions demonstrates on the cases of supply chains the improvement of financial position and liquidity of all chain members. The research has a potential to de applied in businesses since the algorithm represents a comprehensive managerial tool for Joint Working capital management in supply chains. It might be used to achieve optimal cash conversion cycle values for minimal supply chain costs on working capital constrained by liquidity and profitability target levels.