Competition of the mechanisms : how Chinese home appliance firms coped with default risk of trade credit?
AbstractDuring the transition period from a planned economy to a market economy in 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. Interviews with home electronics appliance firms revealed that firms coped with this problem by adjusting their sales mechanisms (found four types), and the benefit of institutions was limited. A theoretical analysis claim that spot and integration are inferior to contracts, a contract with a rebate on volume and prepayment against an exclusive agent can realize the lowest cost and price. The empirical part showed that mechanisms converged into a mechanism with the rebate on volume an against exclusive agent and its price level is the lowest. The competition is the driving force of the convergence of mechanisms and improvement risk management capacity.
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Bibliographic InfoPaper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 312.
Date of creation: Dec 2011
Date of revision:
Publication status: Published in IDE Discussion Paper. No. 312. 2011.12
Postal: Publication Office, IDE 3-2-2 Wakaba, Mihama-ku, Chiba-shi, Chiba 261-8545 JAPAN
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- L68 - Industrial Organization - - Industry Studies: Manufacturing - - - Appliances; Furniture; Other Consumer Durables
- L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
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