Core Insights - The research highlights a paradox in trade credit where higher bankruptcy risks lead to increased profits for retailers, contrary to traditional theoretical predictions [1][2][6]. Group 1: Research Background - Small and medium-sized enterprises face financing constraints, making trade credit a crucial financing tool for retailers who struggle to obtain bank loans [1][5]. - Existing theories predict that retailers under financial constraints will increase orders due to limited liability protection, while suppliers will raise wholesale prices to capture higher profits [1][6]. Group 2: Experimental Study - The study conducted controlled laboratory experiments to empirically test how bankruptcy risk affects order quantities, wholesale pricing decisions, and profit outcomes under trade credit contracts [2][6]. - The experiment involved three different initial funding levels for retailers: no bankruptcy risk (NR), low bankruptcy risk (LR), and high bankruptcy risk (HR) [6]. Group 3: Key Findings - Contrary to theoretical predictions, retailers significantly reduced order quantities when facing bankruptcy risks, while suppliers lowered wholesale prices in response [2][6][7]. - Retailers' profits increased with higher bankruptcy risks, which is opposite to the predictions of the complete rationality model [6][7]. - Behavioral models, including reference point dependence and fairness preferences, effectively explain the decision-making biases observed in the experiment [6][7]. Group 4: Management Implications - Suppliers should recognize the conservative behavior of retailers under bankruptcy risk and adjust contract designs accordingly [7]. - Retailers may overlook profit opportunities due to a failure to consider the advantages of limited liability [7].