Trade Credit as a Markovian Decision Process with an Infinite Planning Horizon

Trade Credit as a Markovian Decision Process with an Infinite Planning Horizon

The trade credit process is modelled as a series of stochastic cash flows with recursive decisions over an infinite planning horizon. A closed form solution is obtained for the value of extending credit, and a function is derived for the upper bound on acceptable default risk. Conditions for optimal...

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Veröffentlicht in:Quarterly journal of business and economics 1992-10, Vol.31 (4), p.51-79
1. Verfasser: Fewings, David R.
Format: Artikel
Sprache:eng
Schlagworte:
Accounts receivable
Analysis
Cash flow
Cash sales
Credit
Credit decisions
Credit risk
Customers
Decision-making
Economic models
Financial transactions
Functions
Invoices
Markov analysis
Markov processes
Trade credit
Vendors
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Zusammenfassung:The trade credit process is modelled as a series of stochastic cash flows with recursive decisions over an infinite planning horizon. A closed form solution is obtained for the value of extending credit, and a function is derived for the upper bound on acceptable default risk. Conditions for optimal myopic credit decisions are examined, and the value of extending trade credit is analyzed for sensitivity to function parameters.
ISSN:0747-5535
1939-8123
2327-8250