Financing Seasonal Demand

Abstract

This paper identifies seasonal firms and their peak seasons to provide empirical evidence on the approach these firms take to finance seasonal operations. The seasonal use of funds, which builds prior to seasonal revenue, is largely financed with transitory sources of credit, such as credit lines, trade credit, and commercial paper. Permanent financing is only moderately used to meet seasonal needs. However, both weak credit market conditions and firm-level financial constraints limit the ability of seasonal firms to use debt as transitory financing. These frictions result in a partial shift to permanent financing, but also reduce the seasonal use of funds overall.

Keywords: Short-term financing, Seasonality, Trade credit, Financial Constraints

JEL Classification: G32, G31