Article
Debt Financing and Supply Chain Capacity Investment
Foundations and Trends® in Technology, Information and Operations Management [15719545]
(2017)
Abstract
This paper studies a supply chain composed of a supplier and a buyer. The supplier has to make a buyer-specific capacity investment before demand uncertainty has been resolved. After the uncertainty has been revealed, the firms decide whether to trade with each other and on what terms through bilateral bargaining. I show that the supplier will borrow risky debt and invest more in capacity than if it Ire purely equity financed. The expanded capacity under risky borrowing is below the channel-efficient level if it is optimal to finance capacity investment with a mixture of equity and debt, and above the channel-efficient level if it is optimal to finance capacity investment entirely with debt.
Keywords
- G20 Financial Services,
- G32 Financial Risk and Risk Management,
- M11 Production management Supplier financing,
- Supply chain finance,
- Cost of capital
Disciplines
Publication Date
2017
DOI
10.1561/0200000068
Citation Information
Joice (Qiaohai) Hu. "Debt Financing and Supply Chain Capacity Investment" Foundations and Trends® in Technology, Information and Operations Management [15719545] Vol. 10 Iss. 3-4 (2017) p. 358 - 371 Available at: http://works.bepress.com/joiceqiaohai-hu/15/