The Default Dependence And Its Credit Risk Contagion In Supply Chain

Things are never isolated from each other.They connect with each other.They influence each other.The survival and development of one thing can not be separated from the survival and development of other things.Under the background of economic globalization,the relationship among economic individuals is particularly prominent,which is inter-dependent,inter-related and common development.In the face of the uncertainty of the external macroeconomic environment and the scarcity of economic resources,economic individuals can obtain the economic resources that needed for the survival and the development through horizontal integration and vertical merger under the premise of making full use of their own resources.Supply chain is formed and developed gradually by seeking co-operative alliance among economic individuals to reduce external risks.Global economic integration promotes the deep integration among enterprises,which expands from the internal integration and optimization of enterprises to the integration and optimization between enterprises in supply chain.Enterprises are no longer isolated from each other,but more strategic partners.They are endeavor in realizing business integration,information integration and financial integration in supply chain.Global economic competition is no longer the competition among enterprises but more in the supply chain.In the context of globalization and international division of labor,the supply chain has greatly improved the inter-dependence of supply network resources,information and technology through business outsourcing,inventory reduction,lean logistics and agile.The dependence of upstream and downstream enterprises in the supply chain is due to business contacts,commercial credit,credit guarantee.Technology dependence of information sharing is an important factor that constitutes the credit risk contagion in supply chain.Under the uncertainty of the external economic environment,the default of an enterprise node in the supply chain may broke the original steady-state of the supply chain.The decision-making error of other enterprises in the supply chain is due to the information asymmetry or the lack of enterprise trust mechanism in the supply chain.Therefore,when a credit risk event of the enterprise occurs in the supply chain,this risk event may be transmitted to other enterprises in the supply chain through the risk carriers such as material flow,financial flow,information flow and technical flow.The credit risk is transmitted and accumulated in supply chain and cannot be digested in supply chain,such credit risk will spread at an exponential rate in the supply chain.Therefore,the bullwhip effect and the domino effect have been formed.Hence,based on the complexity and concealment of the integration of material flow,information flow and financial flow among supply chain enterprises,the local risk of an enterprise spreads along the affiliates in the supply chain causing other companies to default and even leading to a crisis event in the whole supply chain.Such risk agglomeration and infection incidents bring great challenges to the risk management departments of financial institutions.At present,the degree of the openness of China's financial market is still low.Financial market liquidity is poor,financial sharing is weak,and corporate financing channels are relatively simple.In such circumstance,enterprises mainly rely on the commercial bank credit borrowings for their scale expansions and business developments.Therefore,there are numerous relationships between enterprises and banks.The simultaneous default risk between enterprises in supply chain may be transmitted to the financial system through the credit relationship between banks and enterprises.Economic sector is a complex network system.Real economic sectors and financial departments connect each other,influence each other and benefit each other.The crisis in the real economic sector may affect the normal operation of the financial institutions.And the pressure of default risk in the financial institutions may also restrict the development of the real economy.The global economy has slowed since the 21~stt century,combined with the further impacts of financial crisis,the development of real economy has shrinked deeply.The events of default occur more continually.The default of a certain company may induce other company to default,this phenomenon is called“dominoes effect”.As a result,the financial institution may experience large losses.Based on the theory of resource dependence theory,network organization and information asymmetry theory,we study the dependence relationship between enterprises in the supply chain.We also study the risk contagion effects between upstream and downstream enterprises in the supply chain.We analyze the transmission path of credit risk in the supply chain.We study the risk contagion effects from supply chain industries to the financial institutions based on the dependence relationship.Finally,we measure the portfolios risk of upstream and downstream enterprises in the supply chain.Firstly,the thesis conducts relevant theoretical analysis.From the perspectives of resource dependence theory,network organization theory and information asymmetry theory,it analyzes the possibility of credit risk and how credit risk contagion leads to a series of the crisis events in the supply chain.From the perspective of resource dependence theory,the formation of the co-operative relationship between upstream and downstream enterprises in the supply chain is caused by the scarcity of resources and the uncertainty of the external environment.In the case of a high degree of uncertainty in the external environment,enterprises will actively consolidate the original supply chain co-operation to reduce the risks brought by the uncertainty.In such way,enterprises can offset the external risks.The upstream and downstream enterprises in the supply chain realize the sharing of resources,information,technology and management.They complement each other and coordinate the complementary resources.They establish a stable and un-replicable supply chain relationship.In such way,they enhance the competitiveness of the entire supply chain.However,when this seemingly solid strategic cooperative chain in the supply chain encounters a major negative impact from the external environment,it may cause a chain-like credit risk contagion event and bring serious economic losses to the member enterprise in the supply chain.The theory of network organization believes that the network formed by enterprises is an important strategic resource for the survival and development of enterprises.Interconnected network organizations can enable companies to focus on their own specialized production and value activities.They can help companies identify uncertainties in the external economic environment and reduce their dependence on external resources.They can help companies reduce transaction costs and production cost.They can help enterprises deal with the negative impact of external economic environment.Network organization seems to be able to bring benefits for enterprises once and for all.However,everything has two sides,and the changes between good and bad depend on the changes of the environment.Under certain conditions,the cooperation form of the network organization may become the hotbed of enterprise credit risk transmission within the network organization,leading to the spreads of the enterprise credit risk.Information asymmetry refers to that in a certain reciprocal broker relationship,one party does not have or does not fully have the information owned by the other party,so that the parties present an asymmetric distribution in the understanding of certain events.From the perspective of the capital market,the contagion effect of the credit risk in the supply chain occurs because investors cannot obtain all the information of the risk assets of enterprises in the supply chain.And the transaction cost of acquiring such information of risk assets is too high.In this circumstance,investors often make the following investment decisions.When an enterprise's operating conditions in the supply chain are in trouble or the product's goodwill suffers losses,the enterprise's stocks show a sharp decline.Due to the information asymmetry,investors re-evaluate the stock value of the enterprise and its associated enterprises in the upstream and downstream of the supply chain.When investors are pessimistic about the business performance of the enterprise and its affiliated enterprises,investors will follow the trend of reducing the risk assets of the enterprises and its affiliated enterprises.Due to the existence of the information asymmetry,the herd effect of investors'investment decisions will also increase the possibility of credit risk contagion in the supply chain.The positive chain-based infection model of credit risk is common in supply chain risk management.The contagious effect of the product quality risk in the supply chain is an example of the risk positive infection model.The spread of risk in the dairy industry that is due to the melamine incident in milk powder is also a typical example of a positive chain infection model in the supply chain.Therefore,this paper studies the credit risk contagion effect of upstream and downstream enterprises in the supply chain and the systemic risk contagion effect of the supply chain industries on financial institutions from the perspective of the forward chain risk contagion model,which is mainly carried out in four part:First,the financial data and market data of the upstream and downstream listed enterprises in the steel industry are taken as examples to measure the contagion effect of credit risk between the upstream and downstream enterprises in the supply chain.This paper describes the dynamic characteristics of credit risk contagion effect and analyzes the driving factors of credit risk contagion effect between upstream and downstream enterprises in the supply chain.The empirical results show that there is a significant tail-dependent relationship between the credit risk of the upstream and downstream enterprises in the supply chain.The credit risk contagion effect of upstream and downstream enterprises in the supply chain presents a dynamic time-varying feature and a sudden increase during the period of macroeconomic environment fluctuation.Due to the differences in corporate financial association between two enterprises in the upstream and downstream of the supply chain,the effects of micro factors on credit risk contagion in different groups are also different.Secondly,it is not representative to study the contagion effect of credit risk between two enterprises in the supply chain,but it is necessary as a basis for research.Therefore,this part studies the credit risk contagion path and contagion effect among the upstream and downstream enterprises in the supply chain as a supplementary study of the credit risk contagion effect.This paper first introduces the measurement method based on VaR risk contagion effect,and then calculates the credit risk contagion effect based on vine copula model.This paper uses KS boot-strapping to test the differences of the credit risk contagion in the supply chain enterprises under different risk transmission paths.Empirical study results show that the size of the credit risk contagious effect is affected by the originating enterprise's risk size on one hand,on the other hand it also is affected by the ability of the enterprise in coping with risk.These two factors are the mainly reasons for the differences of credit risk contagion in supply chain under different risk transmission paths.In the case of the same risk-transfer intermediary enterprises,different upstream risk source enterprises have different effects on the downstream enterprises'credit risk.When the upstream risk source enterprises and the risk transmission intermediary enterprises are the same,different risk receiving enterprises are affected by the supply chain upstream enterprise credit risk in the different levels.Third,as the main driving force of national economic development,the development of the real economy sectors need a large amount of capital.Financial institutions,especially banks,provide capital for the real economy sectors through the form of lending.However,the credit linkage between banking institutions and the real economy sectors may become a potential channel for the systemic risk contagion.The upstream and downstream industries of steel are industries with excess capacity in production.These industries load account for a high proportion of bank lending structure,so the credit status of the upstream and downstream of steel may affect the stability of the financial department.This paper starts from the systemic risk contagion effect of the upstream and downstream industries of the steel industry on the banking industry,which includs two aspects:first,when the real economy is in the extreme state of the downward value at risk,is there a systemic risk contagion effect on the financial system?Second,whether the different causes of capital market fluctuations will lead to the differences in the contagion effect of the real economy on the systemic risk of the financial departments.Empirical study results show that supply chain upstream and downstream industries as a whole,well-run industry could eliminate the credit risk contagious effect of supply chain on the financial system.Namely,the normal operation of the industry could have the effect of“barrier”in reducing the credit risk contagion of the supply chain on the financial system.However,when the negative impact is transmitted from the downward extremely risky industry to another industry in the supply chain,and leads to the same downward extremely risk in another industry.Then the double downward extremely risk contagion effects of the banking systemic risk is higher than the single downward extreme risk contagion effects.China's real economy is affected by the negative impact of the international financial crisis.It deepens the systemic risk contagion effect of the supply chain on the banking system.However,this paper doesn't find the same result in the period of domestic stock market fluctuation.The differences of the systemic risk contagion effect in these two periods may lie in:the international financial crisis,caused by the U.S.subprime mortgage crisis and European sovereign debt crisis,leaded to the global economic slowdown and even reverse to some extent.The international financial crisis had affected the operating performance and development in the upstream and downstream industries of the steel industry.These negative influences may increase the systemic risk contagion effects of the supply chain on the banking system.However,Chinese stock market matching transaction is a kind of capital operation behavior,which has not substantially affected the actual business performance and development of the supply chain industries.Hence,the abnormal stock market fluctuations caused by investor panic have no substantial effect on the systemic risk contagion effect.Fourth,the portfolio risks of the upstream and downstream enterprises in the supply chain are discussed from the perspective of the dependency of the enterprises'asset value.Here,the default distance calculated by the KMV model and Value at Risk are used to measure the credit risk of the enterprise in supply chain.The portfolio risks of the upstream and downstream enterprises in the supply chain are estimated by the vine copula model.The empirical study shows that the steel enterprises are at the center of the credit risk dependent structure network in the supply chain.The fluctuation of the credit risk level of the steel enterprises will lead to the changes of the credit level of other enterprises in the supply chain.The credit risk of the steel enterprises may spread to the whole supply chain along the connection path of the enterprises in the supply chain.It is appropriate to apply different types of vine copula models to estimate the portfolios risk of the enterprises in the supply chain.Therefore,this paper argues that,due to the supply chain involved in different scopes of enterprise production,management ability and financial capacity,the risk supervision department should pay more attention to the credit risk contagion effects in the supply chain.The risk supervision department should be endeavor in avoiding credit risk spreading event in the supply chain.Hence,the relevant departments should formulate policies to provide a relatively loose and stable operating environment for the enterprises and to improve the capital market liquidity,so as to form a vibrant supply chain and to provide a solid driving force for the development of China's economy.The main innovations of this paper are as follows:first,this paper enriches the existing research on the contagion effect of corporate credit risk.Secondly,the paper discusses the credit risk contagion of enterprises in the supply chain and the systemic risk contagion effect of the real economy sectors on the financial system from the perspective of tail-dependence.This paper provides a new perspective to study the corporate risk contagion effects and the systemic risk contagion effects.Thirdly,this paper provides risk managers with the dependent structure of credit risk among supply chain enterprises,and gives the evaluative idea of the portfolio risk in the supply chain.