Inventory Financing Incentives In View Of The Bank

This paper summarizes the concept of inventory financing, business models and the evolution, and use system dynamics to analysis the impact for participants of the inventory financing. The study suggests that the inventory financing make the participants in the tripartite win-win situation. It is further pointed out that the bank’s business risk is the main reason to hinder the development of inventory financing. Obviously, a good incentive mechanism should be established to reduce bank’s business risk in inventory financing.Through the analysis of specific business processes combined with principal-agent theory, it is found that there are two kinds of principal-agent relationship between banks and borrowing companies, and between banks and logistics companies. By analyzing the bank’s existing incentive policies, the incentive contracts to borrowing enterprises and logistics business are designed respectively.The paper also discusses the applicability of different incentive mechanisms with the help of modeling analysis. The research result shows that incentives designed can make the borrower to use borrowed funds prudently so as to reduce the business risk of the bank. For logistics companies, the designed incentive strategy compels logistics enterprises to have a better regulatory efficiency and capability. For both the borrower and the logistics company, the incentive method can promote the binding effect of incentives on the use of funds of borrower, and reduce requirements for logistics enterprises to some extend.