Advances in Consumer Research
Issue:6 : 171-187
Original Article
Financing strategies of capital-constrained enterprises in a growth market
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1
School of Management Science and Engineering, Dongbei University of Finance and Economics, 116023, Dalian, Liaoning, China
2
School of Business, Fuyang Normal University, 236037, Fuyang, Anhui, China
Abstract

Capital plays a critical role in supply chain businesses, especially growth enterprises. With respect to a two-echelon supply chain that comprises a core supplier and a capital-constrained retailer with a certain growth potential in the demand market, this study analyzes the supply chain’s optimal decision-making and financing equilibrium between debt financing (bank credit financing and trade credit financing) and equity financing (venture capital and strategic investment). We find that both the retailer’s valuation level and retail market growth potential have significant effects on the options of financing strategies. Using a Stackelberg game model, the study points out that when only debt financing is viable, the financing equilibrium is trade credit financing; when only equity financing is viable, the financing equilibrium switches from venture capital to strategic investment with an increase in market growth potential; when both debt financing and equity financing are viable, the financing equilibrium under low market growth potential and low valuation is venture capital; the financing equilibrium under low market growth potential and moderate valuation, high market growth potential, and low valuation is trade credit financing; and the financing equilibrium under low market growth potential and high valuation, high market growth potential, and high valuation is strategic investment. This study contributes to the growing body of literature on corporate financing and market expansion. This study has several managerial implications for the financing options of both internal and external investors.

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Volume 2, Issue:6
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