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Determinants and consequences of soft budget constraints

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  • Céline Bignebat
  • Fabian Gouret

Abstract

This paper presents empirical work grounded in the soft budget constraint (SBC) literature. A loan is soft when a bank cannot commit the enterprise to hold to a fixed initial budget and/or the timing of repayment. Using data collected by the European Bank for Reconstruction and Development (EBRD) (Business Environment and Enterprise Performance Survey (BEEPS), 2002) in 26 transition economies, we analyze the determinants of managers' expectations of having a soft loan. In particular, we find that managers' expectations are lower when the initial financing requires collateral, and higher for larger firms and when firms had recently experienced financial distress. We also provide evidence that managers' expectations influence their price responsiveness. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 The European Bank for Reconstruction and Development.

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Bibliographic Info

Article provided by The European Bank for Reconstruction and Development in its journal Economics of Transition.

Volume (Year): 16 (2008)
Issue (Month): 3 (07)
Pages: 503-535

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Handle: RePEc:bla:etrans:v:16:y:2008:i:3:p:503-535

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Cited by:
  1. Ernesto Crivelli, 2012. "Local governments’ fiscal balance and privatization in transition countries," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 20(4), pages 677-703, October.

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