Quantifying Credit Risk of Supply Chain Finance: A Chinese Automobile Supply Chain Perspective

Credit risk is a major risk of supply chain finance business, and it has recently gained increasing attention. Due to the high dependence between enterprises, the assessment of the supply chain finance risk will be more complicated. In the current study, the research subjects are almost the single financing enterprises, and the credit risk of financing enterprise portfolio in supply chain finance has rarely been discussed. This study aims to establish a complete risk assessment model, which is based on modified KMV model and Copula function, to quantify the credit risk of enterprises in supply chain finance. Based on the model, we can measure the credit risk of the single financing enterprise and financing enterprise portfolio (up- and down-stream) in supply chain. The results indicate that default contagion does exist in supply chain and the intensity of default contagion between enterprises in the financing enterprise portfolio is asymmetrical. Moreover, the conclusions about the joint expected default frequency and conditional expected default frequency of financing enterprise portfolio in supply chain, are of great significance to commercial banks and other financial institutions.