The Impact of Trade Credit Provision on Retail Inventory: An Empirical Investigation Using Synthetic Controls
Participer
Information Systems and Operations Management
Speaker : S. Alex Yang - Associate Professor, Management Science & Operations
London Business School
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Meeting ID: 929 9785 1153
Abstract
Over the last decade, trade credit has been subject to increasing government regulation in many countries. While such policies are intended to improve suppliers' financial sustainability, they may negatively affect supply chain performance by limiting the positive operational roles of trade credit. In this study, we examine the potential negative implication of limiting trade credit on inventory decisions at the retailer level. Using an empirical strategy that leverages: (i) an exogenous shock imparted by the French Government's intervention to impose a ceiling on trade credit repayment; (ii) a triple difference-in-differences identification strategy; and (iii) Synthetic Controls, we estimate the causal impact of trade credit on firms' inventory stocking decisions. We find that, in retail sectors affected by the French regulation, the decrease in trade credit led to both an economically and statistically significant decline in firms' inventory levels. For example, in the hardware retail sector, the regulation reduced the trade credit level, as measured by payable days, by 16%, which in turn caused an 11% decline in inventory days. Put differently, a 1% reduction in trade credit led to a 0.67% decrease in inventory. Combined with industry-calibrated parameters, these estimates indicate a decline of up to 1.2% retailer profit, and 1.1% in fill rate on the account of the imposed ceiling. Our findings offer direct evidence that trade credit is an indispensable financing source for inventory procurement. Equally importantly, they also inform policymakers that limiting trade credit below equilibrium levels could harm supply chain efficiency and consumer welfare.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3375922
Bio:
S. Alex Yang
Associate Professor of Management Science and Operations
BS (Tsinghua) MS (Northwestern) PhD MBA (Chicago)
Alex's main areas of research and teaching are supply chain finance, FinTech, business analytics, value chain management, risk management, and platform economy. His research has appeared in top management and finance academic journals such as Management Science, Manufacturing & Service Operations Management, and Journal of Financial Economics. He holds editorial positions at several prestigious international academic journals. Alex has extensive experience in teaching MBA, EMBA and Exeuctive Education Programmes, both in English and Chinese.
He has working and consulting experience in companies, financial institutions, and international organizations. He is currently collaborating with companies in the area of supply chain finance, FinTech, and business analytics.