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Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms

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  • Emilio Colombo

    ()
    (Department of Economics, University of Milan-Bicocca)

  • Luca Stanca

    ()
    (Department of Economics, University of Milan-Bicocca)

Abstract

This paper investigates the investment behaviour of a large panel of Hungarian firms during the transition period (1989-1999). We examine the role of financial factors and assess whether financial reforms have succeeded in increasing the efficiency of credit allocation. We find that reforms have hardened budget constraints of small private firms, and reduced informational problems for foreign firms. Small stateowned firms became more sensitive to financial conditions, whereas large state-owned firms were largely unaffected and kept operating under a soft budget constraint.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper68.pdf
File Function: First version, 2003
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 68.

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Length: 34 pages
Date of creation: Dec 2003
Date of revision: Dec 2003
Handle: RePEc:mib:wpaper:68

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  1. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
  2. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
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  5. Janet Mitchell, 1998. "Bankruptcy Experience in Hungary and the Czech Republic," William Davidson Institute Working Papers Series 211, William Davidson Institute at the University of Michigan.
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  9. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
  10. Steven M. Fazzari & R. Glenn Hubbard & BRUCE C. PETERSEN, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
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  12. John P. Bonin & Istvan Abel, 2000. "Retail Banking in Hungary: A Foreign Affair?," William Davidson Institute Working Papers Series 356, William Davidson Institute at the University of Michigan.
  13. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
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  15. Schaller, Huntley, 1990. "A Re-examination of the Q Theory of Investment Using U.S. Firm Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 309-25, Oct.-Dec..
  16. Kornai, Janos, 1986. "The Soft Budget Constraint," Kyklos, Wiley Blackwell, vol. 39(1), pages 3-30.
  17. Perotti, Enrico C & Vesnaver, Luka, 2004. "Enterprise Finance and Investment in Listed Hungarian Firms," CEPR Discussion Papers 4194, C.E.P.R. Discussion Papers.
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  21. Oliner, Stephen & Rudebusch, Glenn & Sichel, Daniel, 1995. "New and Old Models of Business Investment: A Comparison of Forecasting Performance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 806-26, August.
  22. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  23. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc.
  24. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  25. Halpern,László & Wyplosz,Charles (ed.), 1998. "Hungary: Towards a Market Economy," Cambridge Books, Cambridge University Press, number 9780521630689, April.
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