Financing capital-constrained manufacturers: The impact of credit rating under carbon trading

This study develops a supply chain with a capital-constrained manufacturer and a well-funded supplier under the carbon cap-and-trade policy. Within a supplier-led Stackelberg game framework, the manufacturer can choose between bank credit financing (BF), trade credit financing (TCF), or hybrid financing (HF). The manufacturer simultaneously optimizes production quantity and emission abatement levels while incorporating both yield uncertainty and credit risk considerations into the decision-making process. We derive and compare the equilibrium strategies under different financing modes. The findings show that the relationship between the carbon price and the manufacturer's credit rating determines whether each financing option is appropriate. Interestingly, TCF and HF have a broader range of applications than BF. Regarding financing mode selection, the supplier tends to prefer financing modes that include trade credit components, while the manufacturer's optimal financing decision is contingent upon its initial capital endowment. The analysis reveals that a manufacturer with a higher credit rating requires a higher initial capital threshold to opt for BF. We further evaluate the social welfare performance under different financing modes. Moreover, we incorporate an endogenous interest rate mechanism and address the resulting complex equilibrium problem using a heuristic optimization approach. The findings indicate that credit rating significantly affects the financing cost structure. Under certain conditions, the supplier may strategically offer a “negative interest rate” trade credit to influence the manufacturer's financing choice. This study provides novel theoretical insights and managerial implications for optimizing supply chain financing and promoting green transformation under carbon constraints.