Is there a trade-off between inventories and trade credit? The role of the sovereign debt crisis

Using a panel of 72,172 manufacturing firms from 11 euro-area countries over the period 2006- 2015, we investigate how the stock of inventories relates to the extension of trade credit. Consistent with the inventory-management motive for offering trade credit, we find an inverse relationship between the two variables. This association is stronger for firms producing differentiated goods and during the recent sovereign debt crisis. Furthermore, financial intermediation mitigates the inventory-management motive, especially during the crisis period. Our results are robust to using different definitions of trade credit and of the crisis.