Skip to main content
Article thumbnail
Location of Repository

The Inventory Channel of Trade Credit: Theory and Evidence

By S. Bougheas, S. Mateut and P. Mizen

Abstract

We develop a simple theoretical model with a stochastic demand framework that captures the trade-off between inventories and trade credit. The essence is that the firm is in the middle of a credit chain, and produces goods for sale, holding inventories of goods that were produced but unsold at a cost. In the face of uncertain demand for its products the firm extends trade credit to its financially constrained customers to obtain additional sales. Our model provides directly testable predictions to identify the response of accounts payable and accounts receivable to changes in the cost of inventories, profitability, risk and liquidity, and importantly, this influence operates through a production channel. Our results support the model and complement many existing studies focused on explaining the financial terms of trade credit. \u

Publisher: Department of Economics, University of Sheffield
Year: 2007
OAI identifier: oai:eprints.whiterose.ac.uk:9973

Suggested articles


To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.