Actually there is no definitive answer. Several considerations must be included in a proper analysis:
a) Cash reserves. The flexible financing strategy implies surplus cash and little short-term borrowing. This strategy reduces the probability that a firm will experience financial distress. Firms may not need to worry as much about meeting recurring, short-run obligations. However, investments in cash and marketable securities are zero net-present value investments at best.
b) Maturity hedging. Most firms finance inventories with short-term bank loans and fixed assets with long-term financing. Firms tend to avoid financing long-lived assets with short-term borrowing. This type of maturity mismatching would necessitate frequent financing and is inherently risky, because short-term interest rates are more volatile than longer rates.
c) Term structure. Short-term interest rates are normally lower than long-term interest rates. This implies that, on average, it is more costly to rely on long-term borrowing than on short-term borrowing.
