BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 11/2002:
Too many to fail? Inter-enterprise arrears in transition economies
Antje Hildebrandt ()
Abstract: In advanced market economies, the use of trade credits is
an important way of short-term financing and generally considered as being
part of normal business practice. Some transition economies, however, have
experienced a rapid accumulation of trade credits which have led to
interlocking webs of arrears and collective bailouts by the government. In
this paper, firm-level data is used to test whether trade credits are just
part of normal business practice comparable to more advanced
market-economies or whether trade credits represent a systematic phenomena
supporting soft budget constraints of firms in transition. The results
suggest that trade credits are not just normal business practice but that
they can have negative spill-over effects on other firms by worsening their
financial situation. We conclude that the problem of interlocking effects
is more pronounced in countries with less developed institutions, low
financial intermediation and, overall, no credible commitment to market
economic reforms.
Keywords: inter-enterprise arrears; soft budget constraints; transition economies; (follow links to similar papers)
35 pages, September 10, 2002
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