Credit supporting mechanism in supply chain finance: core enterprise's mediating role

Motivated by supply chain finance (SCF) practices, we propose a new financing mode, i.e. discount negotiation on interest rate between the capital-constrained supply chain and the bank. Specifically, with credit strength, a core supplier can help the capital-constrained retailer (a small- and medium-sized enterprise [SME]) negotiate for a possible discount on interest rate from the bank. Such a discount can ease the SME retailer's financing burden. Correspondingly, the bank would set negotiation barriers to limit this discount for its own interests. To reveal the underlying credit supporting mechanism, we establish two Stackelberg games: benchmark model without - and negotiation model with - the core supplier's credit support. It shows that the supply chain members may join forces to conceal this core supplier's real credit level to earn more benefits at the bank's expense. Further, a signalling game is extended to analyse the bank's lending decision with possible untruthfulness of the capital-constrained supply chain on the credit level under information asymmetry. This results in a pooling equilibrium with invalid credit signal transmission. Subsequently, a revenue-sharing contract for coordinating the credit supporting scheme under information asymmetry is designed. Overall, our study carries significant practical implications for implementing the discount negotiation mode in SCF (M11).