Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257804 
Year of Publication: 
2021
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 9 [Issue:] 4 [Article No.:] 59 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-17
Publisher: 
MDPI, Basel
Abstract: 
This article studies the effects of reverse factoring in a supply chain when the buyer company facilitates its lower short-term borrowing rates to the supplier corporation in return for extended payment terms. We explore the role of interest rate changes, rating changes, and the business cycle position on the cost and benefit trade-off from a supplier perspective. We utilize a combined empirical approach consisting of an event study in Step 1 and a simulation model in Step 2. The event study identifies the quantitative magnitude of central bank decisions and rating changes on the interest rate differential. The simulation computes with a rolling-window methodology the daily cost and benefits of reverse factoring from 2010 to 2018 under the assumption of the efficient market hypothesis. Our major finding is that changes of crucial financial variables such as interest rates, ratings, or news alerts will turn former win-win into win-lose situations for the supplier contingent to the business cycle. Overall, our results exhibit sophisticated trade-offs under reverse factoring and consequently require a careful evaluation in managerial decisions.
Subjects: 
business cycle
central bank
company news
event study
interest rates
payment term extension
rating update
reverse factoring
simulation
supply chain finance
JEL: 
G24
M21
G32
G17
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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