A situation where firms to some extent are forced to accumulate outstanding obligations (firms could cope with the problem at the expense of a short-term loan, bank credit, short term securities). However, due to underdeveloped financial markets and high credit risks resulting in the accumulation of outstanding obligations, a key assumption of the second model is that these firms do not encounter the systemic loss. In a more precise formulation, the authors assume that no “linkage” between current obligations and cash inflows expected to take place in the last period is possible (possible external credit financing of ineffective enterprises is outside the framework of these models).
The deepest roots of non-payments are reviewed in the framework of the third model, which is based on the assumption that payment arrears result from ineffectiveness of production and other factors generating ever increasing losses of enterprises. The role played by these factors shall be especially important in transition economies, where old industries and sectors are “dying out,” since they proved to be noncompetitive in the new situation.
Therefore, the growth in non-payments may become a certain “shock absorber” checking the downfall in production and sustaining employment in the “dying out” sectors. However, it may brake the restructuring of production in other sectors of the economy. Â ðàáîòå ïîêàçàíî, ÷òî ð
The processes describing each model are closely related to each other. For instance, it is apparent that ineffectiveness of production described in the framework of the third model seriously deteriorates payment terms and selection problems reviewed in the second model. Non-payments originated by short term cash gaps appear to legalize and “sustain” non-payments thus facilitating the growth of payment arrears reviewed in the framework of the first model.
In the course of our analysis of the problem we arrived at the analysis of a more general macroeconomic model of interaction – the general equilibrium model, which may become the subject of the further study of non-payments. In the framework of such a model there shall be reviewed the “transfer” of payment arrears from one sector to another. The cumulative development of such processes is most perceptible in periods of payment and credit crises and forces even most effective firms, who under normal circumstances do not need crediting to maintain current liquidity, to generate payment arrears. This cumulative growth in non-payments most clearly reveals the “fragility” of financial systems in transition economies.
Our analysis differentiates possible ways and means to restrain non-payments in a transition economy. The effect of the factors described in the framework of the first model may be moderated by the development of the enforcement mechanisms for contractual obligations and introduction of effective bankruptcy procedures. These economic policies shall be based on the governmental program of judiciary reform and be its substantial component.
The second model associates payment arrears with certain “technical” troubles and does not review them as a systemic problem Therefore, these problems will play less important role as financial markets will develop, enterprises get restructured and the financial system improved.
Seemingly, under the market economy there always exists a number of ineffective enterprises, therefore the problem of eliminating mass payment arrears may not be tied to the complete extinction of loss-making enterprises. However, the state may limit the adverse impact of non-payments generated by ineffective sectors on the economy at large by implementing structural economic policies.
The “fragility” of modern financial systems, which may be reflected via a spontaneous cumulative growth in non-payments presents the most serious problem.
The complex and multisided nature of this problem requires a further research, however the facts stated above suffice to conclude that it can not be settled without the improvement of market institutes, rehabilitation of state finances, and without putting in place an enforcement system and bankruptcy procedures.
An empirical study presented in this paper is based on the above theoretical analysis. Methods of multiple regression are applied to test some hypotheses described in the theoretical models.
Our calculations revealed that:
Increments in non-payments are really inversely related to the amounts of granted credits. As concerns interest rates, according to our calculations the growth in non-payments is affected by the dynamics of the nominal interest rates (the relationship was detected in bivariate regressions). It was observed that they are positively correlated. However, the impact of the real interest rates was most profound (the higher the real interest is, the faster the amount of non-payments grows).
The detected relationships, however, explain only a part of the variance of increments in payment arrears. At the same time, the available data do not allow to more precisely define the mechanism of the influence and to find out to what extent increments in interest rates indicate credit difficulties (Model 2), or are an incentive for premeditated withdrawal of funds from the sphere of payment arrears (Model 1).
The empirical evidence favored the hypothesis about the presence of a relationship between non-payments and indicators of ineffectiveness. Growth in losses results in payment arrears, while amounts of profit have no clear relationship with indebtedness. The following shall be emphasized: in the course of the separate calculation of regression relationships between a) non-payments and profits; b) non-payments and losses it was detected that the dependencies were of substantially different nature. For instance, relationships between payment arrears and losses are characterized by higher statistical significance and higher (in absolute values) coefficients (more intensive relationship), stability of signs of coefficients. Profits are statistically significant in some periods, however its influence is not stable and is characterized by changes in the signs of coefficients. Among other factors, which could account for these differences, specifics of methods applied to aggregate evaluations, et cetera there shall be also mentioned a possible implicit relationship between payment arrears and ineffectiveness of financing of certain firms and sectors of the economy. In these cases non-payments represent a type of financial support of relatively ineffective enterprises.
Alongside with the aforementioned factors growth in payment arrears may be facilitated by a sharp contraction of demand for production of domestic firms. The terms of competition between domestic products and imports significantly depend on the real Ruble exchange rate. Calculations reveal that accelerated depreciation of the Ruble result in falling rates of growth in non-payments, what may be explained by expanding demand for domestic products and intensification of current money flows into the turnover of payments among domestic firms.
The ratios between trends demonstrated by retail and producer prices frequently changed over short periods. The calculations reveal that changes in these ratios significantly affected payment arrears. Outpacing growth in producer prices might also represent both primary accumulation of funds in channels of inter-enterprise payments, and higher profitability of production. The impact of this indicator (as well as the real Ruble exchange rate) on profitability was not necessarily directly reflected by accounting indicators of profitability (loss-making) due to the fact that the financial results registered by accounting are different from economic ones, concealment of true financial standing, changes in volumes of output. Therefore, the use of these indicators alongside the accounting results of economic operations does not present contradiction (indicators are not collinear).
There is no doubt that payment arrears on the part of the state (although not always in the form of outstanding obligations) were a major factor behind the generation of non-payments. Indeed, the calculations provide evidence that administration of state expenditures at targeted levels and non-payments are positively correlated.
At the same time, these factors seem to explain only a part of the accumulation of payment arrears (coefficient of determination in Tables 3 through 6 varies from 8 to 13 per cent). The aggregation of factors under analysis (see, for instance, Table 24, Annex 3) allows to increase the explained variance up to 30 per cent and higher. The obtained results agree with our previous research (see: Entov et al., 1998, Lugovoi, Semenov, 2000). Notwithstanding all differences in model specifications and evaluated periods the same factors are statistically significant.
The analysis of offset transactions at the regional level (under certain assumptions the evaluation obtained in this paper may be considered to be a value characterizing the share of offset transactions at the regional level) revealed that offsets are conducted in regions with high overall levels of payment arrears and depend on the performance of the banking sector and effectiveness of regional enterprises. The growth in bank crediting in regions is inversely related to the share of offset transactions. To the contrary, the regions with higher share of loss-making enterprises show more propensity to offsets. The obtained results are more in favor of the non-voluntary nature of offsets. However, there were also detected relationships between offsets and regional market concentration levels, what favors the behavioral (premeditated) nature of offset transactions.
In other words, the regions with high levels of industrial concentration show more propensity to offsets at the regional level.
Intensification of offsets at the regional level may be also interpreted as increasing regional protectionism. Regional authorities seek to decrease tax payments of enterprises at the expense of federal taxes due to the federal budget. However, it is also possible that offsets are conducted due to the impossibility to collect taxes in “cash.” However, the data available for this presentation do not allow to investigate this problem in detail.
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