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Trade credit versus bank credit: Evidence from corporate inventory financing

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  • Yang, Xiaolou

Abstract

In this study, I introduce capital market imperfections into a structure framework of inventory investments and investigate impacts of trade credit on firms’ inventory dynamics and analyze the relationship between trade credit and bank loans. As a result, firms end up using a mix of trade credit and bank loans. I find that the use of trade credit and bank credit can be either complements or substitutes. During tight monetary periods, trade credit operates mainly as a substitute for bank borrowing while during looser monetary episodes even when the economy is weak, trade credit and bank loans are dominated by a complementary effect.

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  • Yang, Xiaolou, 2011. "Trade credit versus bank credit: Evidence from corporate inventory financing," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(4), pages 419-434.
    • Handle: RePEc:eee:quaeco:v:51:y:2011:i:4:p:419-434
    DOI: 10.1016/j.qref.2011.07.001
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    References listed on IDEAS

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    More about this item

    Keywords

    Trade credit; Bank loans; Inventory financing;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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