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Too many to fail? Inter-enterprise arrears in transition economies

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  • Hildebrandt, Antje

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.

Suggested Citation

  • Hildebrandt, Antje, 2002. "Too many to fail? Inter-enterprise arrears in transition economies," BOFIT Discussion Papers 11/2002, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:bdp2002_011
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    More about this item

    Keywords

    inter-enterprise arrears; soft budget constraints; transition economies;
    All these keywords.

    JEL classification:

    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
    • P35 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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