Risk control mechanisms of third-party guarantee when financing newsvendor

¹ School of Management, Fudan University, Shanghai 200433, P.R. China.
² School of Business Administration, Zhejiang Gongshang University, Hangzhou 310018, P.R. China.
³ Research Center of Modern Business and Trade, Zhejiang Gongshang University, Hangzhou 310015, P.R. China.
⁴ School of Business, Nanjing Audit University, Nanjing 211815, P.R. China.

^* Corresponding author: qihuilu@163.com

Received: 11 March 2021
Accepted: 14 July 2021

Abstract

Two risk control mechanisms, namely, cash deposit, and loan limits based on retained profit or maximum expected guarantor profit, are developed for capital-constrained newsvendor financing. Results show that with a large initial capital or mortgage asset, the newsvendor reduces the order quantity to avoid bankruptcy risk. Under the risk control mechanism with a cash deposit, the guarantor gains greater profit when the newsvendor has a low initial capital. Setting a loan limit is thus an effective mechanism for newsvendors to not only reduce the bankruptcy risk, but also increase the guarantee profit. Numerical experiments also show that, compared with the risk control mechanism based on maximum expected profit, loan limits based on retained profit is more beneficial for the newsvendor, guarantee, and the bank.