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Financial Flexibility and Short-Term Financing Needs: Evidence from Seasonal Firms

62 Pages Posted: 23 Apr 2013 Last revised: 10 Jan 2017

Douglas J. Fairhurst

Washington State University

Date Written: January 9, 2017

Abstract

The financing choices of seasonal firms provides a natural setting to understand how firms manage uncertainty in short-term needs. This paper develops a methodology to identify seasonal firms and shows that seasonal financing needs are met with transitory financing, such as private credit. There is little evidence that permanent financing is used for short-term needs likely due to the carrying costs and agency costs associated with excess cash. Consistent with financial flexibility models, seasonal firms maintain financial policies which allow for the use of private credit for short-term needs such as lower leverage and long-term debt with a longer maturity.

Keywords: Short-term financing, Seasonality, Trade credit, Capital structure

JEL Classification: G32, G31

Suggested Citation

Fairhurst, Douglas J., Financial Flexibility and Short-Term Financing Needs: Evidence from Seasonal Firms (January 9, 2017). Available at SSRN: https://ssrn.com/abstract=2255792 or http://dx.doi.org/10.2139/ssrn.2255792

Douglas J. Fairhurst (Contact Author)

Washington State University ( email )

Todd Hall
P.O. Box 644746
Pullman, WA WA 85721-0108
United States

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