Financing assistance and concession strategies of the transnational supply chain under liquidity shock

Abstract

How to deal with financial distress caused by liquidity shocks has become an urgent problem for firms. We provide a framework on how to clarify the role of financing assistance and concession strategies in the context of transnational supply chains and aim to help managers understand how to choose strategies. With a small liquidity shock, the buyer provides financing assistance to the distressed supplier, resulting in a bailout effect. When the cross-effect of tax difference and vertical shareholding is large, buyer financing can hedge bankruptcy risk more effectively. With a large liquidity shock, the distressed supplier files for bankruptcy. When the reorganization cost is small or moderate, the distressed supplier reorganizes, and concession effect and bidirectional predation behavior occur in the reorganization process. When the reorganization cost is large, the distressed supplier goes into liquidation. The results provide suggestions for financing and bankruptcy decisions of firms under liquidity shock.