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Budget Constraints and Profitability: Evidence from a Transition Economy

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  • Marian Rizov

Abstract

A conceptual framework for analyzing the credit rationing and the link between credit access and profitability is developed. The empirical analysis using data from manufacturing firms in Bulgaria, provides direct estimates of credit rationing and its impact on profitability in transition economies. The results from the switching regression suggest that the presence of credit market constraints does impinge on profitability of credit rationed firms and support the credit crunch hypothesis for periods following the financial market collapse as a result of previous soft budget constraints.

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File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp116.pdf
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Bibliographic Info

Paper provided by LICOS - Centre for Institutions and Economic Performance, KU Leuven in its series LICOS Discussion Papers with number 11602.

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Length: 24 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:lic:licosd:11602

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Keywords: credit rationing; profitability; economies in transition; Bulgaria;

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References

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  1. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  2. Berglof, Erik & Roland, Gerard, 1997. "Soft budget constraints and credit crunches in financial transition," European Economic Review, Elsevier, vol. 41(3-5), pages 807-817, April.
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  17. Budina, Nina & Garretsen, Harry & de Jong, Elke, 2000. "Liquidity constraints and investment in transition economies - the case of Bulgaria," Policy Research Working Paper Series 2278, The World Bank.
  18. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
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  21. Zeller, Manfred, 1994. "Determinants of credit rationing: A study of informal lenders and formal credit groups in Madagascar," World Development, Elsevier, vol. 22(12), pages 1895-1907, December.
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Cited by:
  1. Oliver Gloede & Ornsiri Rungruxsirivorn, 2013. "Local Financial Development and Household Welfare: Microevidence from Thai Households," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 49(4), pages 22-45, July.

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