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Trade Credit as an Option to Acquire Financing
Author(s): Pierre-Yves Brunet;Volodymyr Babich;Tarik Aouam
Source: Journal:Foundations and Trends® in Technology, Information and Operations Management ISSN Print:1571-9545, ISSN Online:1571-9533 Publisher:Now Publishers Volume 10 Number 3-4, Pages: 18 (237-252) DOI: 10.1561/0200000067 Keywords: Supplier financing;Supply chain finance;Cost of capital
Abstract:
We study joint operational and financing decisions of a cashconstrained
manufacturing firm in the presence of bank financing
and trade credit, where banks set credit limit based on borrowers
repayment histories. Trade credit financing enables the manufacturing
firm to build credit history, which affects bank financing
availability in the future periods. This can make trade credit valuable,
even though it is costly in the current period. We quantify
the value of trade credit as a way of securing access to future bank
financing and investigate how financing considerations distort the
firm’s operational decisions.
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