No Going Back: The Interactions Between Processed Inventories and Trade Credit

Abstract

Our paper focuses on testing the advantages in controlling the buyer and salvaging goods supplied where we have information on the nature of the transacted good and information on the inventory of buyers and sellers. We find transactions in specialized goods tend to be conducted more often using trade credit, but willingness to extend trade credit also depends on the ability of the firm to resell goods when demand is uncertain and on inventory costs. The advantages in salvage of goods is also limited by the extent to which goods have been processed by the receiving firm. These findings are derived from 82,000 French firms in four sectors over the period 1999-2007. Our results confirm the findings of the existing literature based on US and UK data, while also giving more support to the inventory transactions cost motive for firms with specialized goods.Trade credit, Inventories