Date: June 26, 2014

Time: 10:00am

Venue: Room 1102, Administration Building, Zijingang Campus

Speaker: Gangshu (George) Cai Associate Professor Santa Clara University

Topic: The Roles of Bank and Trade Credits: Theoretical Analysis and Empirical Evidence

Host: Prof. ZHOU Weihua, Associate Dean of ZJUSOM

Abstract: This paper investigates the roles of bank and trade credits in a supply chain with a capital-constrained retailer facing demand uncertainty. We evaluate the retailer’s optimal order quantity and the creditors’ optimal credit limits and interest rates in two scenarios. In the single-credit scenario, we find the retailer prefers trade credit, if the trade credit market is more competitive than the bank credit market; otherwise, the retailer’s preference of a specific credit type depends on the risk levels that the retailer would divert trade credit and bank credit to other risky investments. In the dual-credit scenario, if the bank credit market is more competitive than the trade credit market, the retailer first borrows bank credit prior to trade credit, but then switches to borrowing trade credit prior to bank credit as the retailer’s internal capital declines.In contrast, if the trade credit market is more competitive, the retailer borrows only trade credit. We further analytically prove that the two credits are complementary if the retailer’sinternal capital is substantially low but become substitutable as the internal capital grows, andthen empirically validate this prediction based on a panel of 674 firms in China over the period2001–2007.

About the Speaker: Dr. Gangshu Cai (蔡港树) is an associate professor in Operations Management and Information Systems at Santa Clara University. Dr. Cai received his B.S. in physics from Peking University and his M.S. in business statistics and economics from the Guanghua School of Management at Peking University. He earned his Ph.D. in operations research from North Carolina State University. His research has been financially supported by the National Science Foundation of U.S.A. and the National Natural Science Foundation of China. He has published more than 20 papers in journals such as Marketing Science, Production and Operations Management, Journal of Retailing, Decision Sciences, and Decision Support Systems. He is the recipient of the Best Paper Award of Fifth International Conference on Electronic Commerce, Kansas State University President’s Faculty Development Award, CBA Fellowship, CBA Outstanding Contributions in Research Award, Ralph Reitz Outstanding Teaching Award, and Santa Clara University Leavey School of Business Extraordinary Research Award and Extraordinary Teaching Award. He is an associate editor of Decision Sciences Journal.