Abstract: Due to a long lead time of ordering and a short life cycle, it must be careful to decide how much to purchase in order to deal with uncertainty of market demand, especially true for a newsvendor-like retailer. As advertising can stimulate market demand, decision-making on advertising needs to be reconciled with one of commodity ordering. Theoretically, the problem mentioned above is abstracted as a problem on joint decision-making of ordering and advertising, which has been widely concerned in recent years. Both loss aversion and financing constraints impose a significant effect on operation strategies. Financial constraints limit feasible range of the strategies that the retailer can choose, whereas loss aversion influences the decision-making objective, which in turn affects the optimal strategies. A natural question arises, how to allocate the limited funds for commodity purchase and advertising promotion, if a loss averse retailer is confronted with financing constraints. The problem mentioned above is discussed in this paper.
To begin with, the optimal strategies are characterized on ordering and advertising of the retailer. Under the optimal strategies, the marginal utility by the last unit fund in purchasing is equal to one in advertising. What's more, the ratios, which of marginal utility by the revenue and marginal negative utility by the cost correspondingly, are also equal as well. This conclusion keeps hold established, regardless of loss preference, the initial capital, and financing interest rate. In particular, in the case of sufficient funds or shortage of funds, the marginal utility equals to the marginal negative utility. In case of relative shortage of funds, the marginal utility is strictly greater than the marginal negative utility. Furthermore, the ratio of the two is between 1 and the running cost per financing fund. In the following, impact on the optimal strategy is analyzed of loss aversion, initial fund, financing interest rate, purchase price, sales price and sensitivity of advertising promotion, and reveal the mechanisms behind. In the case of sufficient funds or shortage of funds, the changing direction of the order quantity is the same with that of the intensity of advertisement as the exogenous factors change. In the case of relative shortage of funds, the varying direction of the ordering quantity is opposite to that of the intensity of advertisement. At last, joint impact on the operation strategies is explored of loss aversion and adverting effect. The operation strategies are affected by loss aversion preference of the retailer, if and only if it is likely to operate at a loss. In particular, in the absence of advertising, a loss is inevitable. However, in the presence of advertising, no loss is possible.
The management implications are as follows. Firstly, ordering and advertising need to be reconciled. If possible and necessary, the retailer should use external financing to alleviate financial pressure. Secondly, with financial constraints, it need not always follow the principle that marginal revenue equals to marginal cost in capital utilization. In fact, if the retailer is relatively short of funds, marginal revenue should be strictly greater than marginal cost. Finally, if the retailer is loss averse, it should pay more attention to marginal utility and marginal negative utility, rather than marginal revenue and marginal cost, which is true under loss neutrality.

Key words: newsvendor problem, loss aversion, financing constraint, advertising promotion