The Study On Firm's Debt Structure Optimization And Optimal Inventory Decision

A lot of theorems and practices have asserted that there are relationships between firm's operational activities and financing decisions. As the foundations of the firm's operational activities, inventory decision and financing decision play important roles. Now the market competition is not the competition of two firms but is the competition of different supply chains. And their operations are affected by the supply chain members who are the nearest to them, which makes the inventory decision more difficult. This paper intends to model the relationships between trade credit, bank credit and inventory decision for the supply chain firm. By incorporating the factors, such as financial distress cost and bargaining power, I make my model more practical.This paper focuses on the following questions: When the financial distress cost exists, how does a firm make inventory decision when he can take the supplier's trade credit, short term bank credit and long term bank credit and also give trade credit to his customer? How can the supply chain firm determine the optimal cash-holding, and the optimal dividend? If there is some restriction on the supplier's trade credit, how can the supply chain firm make decision?In this paper, there are some main contributions:(1) The paper considers the optimal inventory-holding decision and optimal cash-holding decision under new conditions: two-level trade credit and financial constraints, the adjusted financial distress probability is introduced as a key index. With those above, this paper models the optimal inventory-holding and optimal cash-holding. By the theoretical and numerical analysis, the paper finds that the supplier's trade credit has a positive effect on the firm's optimal decisions, but the firm's trade credit for its customer has little effect on his optimal decision, when the supplier's trade credit is the only debt financing source.(2) Under two financial sources -- the supplier's trade credit and short term bank credit, the firm's optimal inventory-holding and optimal cash-holding change with the short term bank credit rate consistently. And with the supplier's trade credit becoming stricter, firm will hold smaller inventories and borrow less both from the supplier and bank. Besides, with the short term bank credit rate becoming higher, the firm is less restricted by the coefficient of financial distress function. (3) The amounts that the firm pays for the long term bank credit per period determine the decision mode for the optimal decisions. With the two-level trade credit, the long term bank credit may have an important effect on his optimal inventory decisions and determine the way the firm makes the optimal decision.