Abstract:
This study analyzes the relationship between trade and bank credit, considering
them as jointly determined variables. The relative sizes of bank and trade credit to
sales are modeled in a two-equation system, allowing them to appear as explanatory
variables in each other’s equations. Utilizing the administrative panel data consisting
of large firms in Kazakhstan, I carry out my estimations employing the 2SLS method
treating exclusion restrictions as instruments. Short-term financial investments are
used as the exclusion restriction for the trade credit equation, whereas the size of
intangible assets and cash-on-hand are utilized as exclusion restrictions for the bank
loans equation. The results suggest a complementary relationship between trade and
bank credit. Additional analysis during the 2014-15 economic crisis period points out
to a decrease in the effect of the size of the labor cost on trade credit on the onset till
the middle of the 2014-15 economic crisis. I also find that the effect of the size of fixed
assets on bank loans weakened in 2015-16.