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Investment, Credit Rationing and the Soft Budget Constraint: Evidence from Czech Panel Data

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Author Info
Lubomir Lizal
Jan Svejnar

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Abstract

Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing bank loans to firms and the high rate of investment of large state owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit-maximization.

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Publisher Info
Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 363.

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Date of creation: 01 Feb 2001
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Handle: RePEc:wdi:papers:2001-363

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Related research
Keywords: Investment; restructuring; credit rationing; soft budget constraint; ownership; legal status; transition to a market economy;

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Find related papers by JEL classification:
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
P21 - Economic Systems - - Socialist Systems and Transition Economies - - - Planning, Coordination, and Reform
D21 - Microeconomics - - Production and Organizations - - - Firm Behavior
D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing

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References listed on IDEAS
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    Other versions:
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    Other versions:
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    Other versions:
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