报告题目：The Effect of Borrowing Base Covenants in Mitigating Price Risk Under Inventory-based Financing

报告摘要：Borrowing base covenants (BBC) are commonly used in inventory-based financing (IBF) in practice to protect a lender against the potential market value erosion in collateralized inventory. This paper studies the effects of BBC in IBF by considering a supply chain in which a supplier sells a key material to a cash-strapped retailer, and offers an IBF facility to the retailer using purchased inventory as collateral. The price of the collateralized inventory is a random variable, which further affects the retail market of the retailer’s final product. We find that, in the presence of financing, the retailer tends to over-order the material especially when the price is expected to go down. This creates additional agency cost and therefore hurts both players’ profits. Under such price uncertainty, the utilization of BBC in IBF can mitigate the retailer’s default risk by liquidating the inventory in advance before selling to a bad retail market, which benefits the supplier. In addition, BBC can also benefit the retailer since the supplier will charge a lower interest rate due to the reduced risk, resulting in a win-win outcome. However, BBC can also jeopardize the retailer’s profit because the inventory liquidation may undermine the retailer’s ability to fulfill the future market demand especially when it’s good. Finally, when the fluctuation of the material price is not too intense, we find that BBC is able to fully eliminate the risk due to price uncertainty when the retailer is sufficiently poor.

报告人简介：Vernon Hsu is a Choh-Ming Li Chair Professor in the CUHK Business School, The Chinese University of Hong Kong. He had also held faculty positions at the University of New South Wales, Australia, George Mason University, USA, and Hong Kong University of Science & Technology. Professor Hsu’s research interests include operations and supply chain management. Some of his current research projects investigate the integration of international tax and financial planning with global supply chain management. His research has been published in journals such as Management Science, Manufacturing and Service Operations Management, Operations Research and Productions and Operations Management.