Determinants Of Short Term Debt Financing

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• Discuss the topic and its variables.

The topic under study is “Determinants of short term debt financing. When we have a look at this topic, we see that this whole article clearly states the factors that influence or affect the short term debt financing.

This tells us that the amount of short term debt financing, which a firm is having in use, is directly related to the quantity of a firm’s current assets. Short term assets and liabilities are said to be those items which can be used, can be liquidated, mature or even paid off within a period of one year.

This also states, that a firm should keep on adjusting its short term debt financing until the amount of that firm’s current liabilities equals to that of its current assets and a firm’s short term debt financing should vary over time, as we know that the amount of a firm’s current assets and liabilities does change.

Even if a firm grows, the amount of its current assets will increase and same goes for the current liabilities. SO, in accordance with this, a firm will have to increase the amount of its short term debt financing. If a firm’s current assets decrease, then the amount of its short term debt financing and other current liabilities will decrease. Hence, this is called the “size effect” on short term debt and it leads to a direct relationship between a firm’s current assets balance and short term debt financing.

Furthermore, another source of change in a firm’s short term debt financing may occur if we take
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