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The adjustment of financial ratios in the presence of soft budget constraints: evidence from Bulgaria

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  • Jozef Konings
  • Hylke Vandenbussche

Abstract

This paper is the first to study the behaviour of financial ratios in an emerging economy of Central Europe. Using the entire population of company accounts in Bulgaria we find that for the financial ratios we considered, adjustment towards a target takes place but the speed of adjustment is lower than that for Western companies reported in earlier studies. Also, we find the adjustment of financial ratios in Bulgaria to be far slower in firms characterized by soft budget constraints, a widespread phenomenon in Central Europe. However, the speed of adjustment of most financial ratios shows up as significantly higher after the Bulgarian financial crisis in 1997. Our results indicate that the partial adjustment model may not be the most appropriate model for an emerging economy like Bulgaria. Further research needs to clarify how expectations are formed and financial ratios move over time in transition countries such as Bulgaria.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0963818032000102980
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal European Accounting Review.

Volume (Year): 13 (2004)
Issue (Month): 1 ()
Pages: 131-159

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Handle: RePEc:taf:euract:v:13:y:2004:i:1:p:131-159

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Cited by:
  1. Sandra PONCET & Walter STEINGRESS & Hylke VANDENBUSSCHE, 2009. "Financial constraints in China: firm-level evidence," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2009035, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Everaert, Greetje & Vandenbussche, Hylke, 2001. "Does protection harden budget constraints?," Open Access publications from Katholieke Universiteit Leuven urn:hdl:123456789/118264, Katholieke Universiteit Leuven.
  3. Nhu Tuyên Lê & Marc De Bourmont & Olivier Vidal, 2011. "La perception des changements comptables par les acteurs : le cas du Viêt-Nam," Grenoble Ecole de Management (Post-Print) hal-00650545, HAL.

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