Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212509 
Year of Publication: 
2002
Series/Report no.: 
BOFIT Discussion Papers No. 11/2002
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
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.
Subjects: 
inter-enterprise arrears
soft budget constraints
transition economies
JEL: 
P31
P35
L10
Persistent Identifier of the first edition: 
ISBN: 
951-686-838-X
Document Type: 
Working Paper

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