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Seminar
Department of Systems Engineering and Engineering Management
The Chinese
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Title |
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How Inventory Is (Should
Be) Financed: Trade Credit in Supply Chains with Demand Uncertainty and Costs
of Financial Distress |
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Speaker |
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Song (Alex) Yang |
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Ph.D. Student |
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The University of
Chicago Booth School of Business |
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Date |
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Feb 4th, 2010 (Thursday) |
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Time |
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2:00 p.m. - 3:00 p.m. |
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Venue |
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Room 513 |
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William M.W. Mong Engineering Building |
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(Engineering Building Complex Phase 2) |
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CUHK |
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Abstract:
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As an integrated
part of a supply contract, trade credit has intrinsic connections with supply
chain contracting and inventory management. Using a stylized model that
explicitly captures the interaction of firms\' operations decisions and
financial risks, this paper attempts to develop a deeper understanding of
trade credit from an operational perspective. Revolving around the question
of what role trade credit plays in channel coordination and inventory
financing, we demonstrate that with demand uncertainty, trade credit enhances
supply chain efficiency by serving as a risk-sharing mechanism. Two forces
determine the optimal trade credit terms: the sales motive (increasing sales
through risk-sharing) and the financing motive (minimizing costs of financial
distress through financial diversification, that is, employing multiple
financing sources). Facing a trade credit contract, the retailer finances his
inventory using a portfolio of cash, trade credit, and short-term debt, and
the structure of this inventory financing portfolio depends on the
retailer\'s leverage and bargaining power. Additionally, our model suggests
that financial diversification provides an alternative explanation for the
decentralization of some supply chains and the use of factoring in accounts
receivable management. Finally, using a sample of firm-level data from
Compustat, we find that the inventory financing pattern our model predicts
exists in a wide range of firms. |
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Biography:
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Song (Alex)
Yang is a PhD candidate in Management Science/Operations Management at The
University of Chicago Booth School of Business. His research interests
include operations-finance interface, supply chain management, dynamic
pricing and revenue management, stochastic modeling and optimization, and
financial engineering and risk management. His previous work appears in
Journal of Banking and Finance. Alex Yang completed his MS in Industrial
Engineering at Northwestern University in 2004, and his Bachelor of
Engineering (with Honors) at the Department of Automation, Tsinghua
University in 2003. He has held positions at United Airlines, XO Capital
Group, and Citadel Investment Group, and is expecting to receive his MBA at
June 2010. |
************************* ALL ARE WELCOME ************************
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Host |
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Prof. Houmin Yan |
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Tel |
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(852) 2609-8329 |
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Enquiries |
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Prof. Nan Chen or Prof. Sean X. Zhou |
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Department of Systems Engineering and Engineering
Management |
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CUHK |
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Website |
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Email |
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