Equity Financing Mode and Price-Commitment Selection for Supply-Chain Market Development: A Shareholder-Wealth Perspective

Abstract

A supplier financing a positive-scale market-development project must jointly select an equity provider and a price-governance package. Retailer equity can alter downstream pricing, whereas passive outside equity leaves the operating game unchanged but reallocates value through the issue price. Effort determines both the date-0 capital requirement and the stable growth of subsequent cash flows. We capitalize operating profit, assign post-money claims, and maximize the wealth retained by the supplier's original shareholders subject to all parties' participation. The eight nominal packages compress to four price outcomes, six original-owner value classes, and four effective candidates. Outside transaction valuation has opposing effects: it relieves incumbent dilution but lowers the investor's claim per dollar invested. External equity is therefore selected only inside a bounded valuation wedge. We also derive conditions under which supplier operating-value and original-owner-wealth rankings reverse. The results show that a privately preferred financing package need not be transactable and that financing source, price governance, and post-money dilution cannot be selected from operating-profit rankings alone. The package ranking remains robust when the project's incremental growth premium is temporary rather than perpetual.