Abstract: Firms in a supply chain are interdependent so that one firm's financial distress may have impacts on its upstream and downstream enterprises and even cause their financial distresses.For a simple supply chain which is composed of one upstream manufacturer and one downstream retailer,this paper investigates how the financial distress propagates along the supply chain.The impacts of the retailer's financial distress on the manufacturer's operation and financial status are firstly investigated from the operational perspective.Then combined with the manufacture's decision behavior,the propagation characteristics of financial distress from the retailer to the manufacturer are analyzed Numerical analyses further illustrate the influence of operational parameters of the supply chain on the propagation.

Key words: supply chain, financial distress, propagation, Stackelberg game