Frydman, Roman (Department of Economics, New York University) Gary, Cheryl (The World Bank) Hessel, Marek (School of Business, Fordham University) Rapaczynski, Andrzej (School of Law, Columbia University)
Abstract
This paper, based on a large sample of mid-sized manufacturing firms in the Czech Republic, Hungary, and Poland, examines differences in the behavior of state and private companies in short-term credit markets in transition economies. The study offers three main conclusions. First, we find that state enterprises represent a higher credit risk both because of their inferior economic performance and because of their lesser willingness or propensity to meet their payment obligations. Second, the brunt of the state firms' lower creditworthiness is borne by their state creditors, as state enterprises deflect the higher risk away from private creditors. Third, this transfer of risks from private to state creditors is possible because state creditors impose significantly "softer" financial discipline on state firms. Inasmuch as such softness may reflect unwillingness to accept a likely demise of a large number of state firms that are in principle capable of successful restructuring through ownership changes, we conclude that the imposition of financial discipline is not sufficient to remedy ownership and governance-related deficiencies of corporate performance.
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Find related papers by JEL classification: G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions
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