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Capital investment and determinants of financial constraints in Estonia

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  • Hobdari, Bersant
  • Jones, Derek C.
  • Mygind, Niels

Abstract

Unlike previous empirical work concerning investment behavior and the determinants of liquidity constraints, we use a switching regression framework when sample separation is unknown and endogenous and firms are assumed to operate either in the financially constrained or in the financially unconstrained regime. By using new panel data for Estonian companies during 1993-2002 we find that: (i) investment behavior is characterized by two distinct regimes; (ii) the likelihood of being financially constrained is higher in firms that are recently privatized, small and where ownership is concentrated in the hands of insiders and the state; (iii) the actual probabilities of operating in the financially constrained regime are quite high and essentially stable during the whole period under consideration; (iv) ownership structure affects investment beyond its indirect effects through financial constraints.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Systems.

Volume (Year): 33 (2009)
Issue (Month): 4 (December)
Pages: 344-359

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Handle: RePEc:eee:ecosys:v:33:y:2009:i:4:p:344-359

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Keywords: Corporate investment Liquidity constraints Insider ownership Switching regression Soft budget constraint;

References

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Citations

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Cited by:
  1. Curtiss, Jarmila & Ratinger, Tomas & Medonos, Tomas, 2012. "Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic," Working Papers 122841, Factor Markets, Centre for European Policy Studies.
  2. Martin Pospisil & Jiri Schwarz, 2014. "Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy," Working Papers 2014/01, Czech National Bank, Research Department.
  3. Curtiss, Jarmila & Ratinger, Tomáš & Medonos, Tomáš, 2012. "Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic," Factor Markets Working Papers 121, Centre for European Policy Studies.
  4. Vargas, Jose P Mauricio, 2012. "Binding Constraints: Does Firm Size Matter?," MPRA Paper 41286, University Library of Munich, Germany.
  5. Quader, Manzur & Taylor, Karl, 2014. "Corporate Efficiency, Credit Status and Investment," IZA Discussion Papers 8285, Institute for the Study of Labor (IZA).

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