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Investment, Efficiency, and Credit Rationing: Evidence from Hungarian Panel Data

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  • Mathilde Maurel

Abstract

Relying upon a rich and unique panel of Hungarian firms over 7 years, from 1992 up to 1998, this paper estimates simultaneously TFP, Total Factor Productivity, identified as efficiency, and the parameters of a model where investment depends upon internal funds, wages, and sales, as in Prasnikar J. and Svejnar J. (2000). It shows that while real investment is higher in foreign firms, the improvement in efficiency due to investment is significantly higher in Hungarian domestic firms. We test the possibility that this higher than average foreign investment may exacerbate other firms credit constraints by crowding them out of domestic capital markets. Of course one must control for that foreign firms may simply be more profitable and have access to more collateral, hence be a better investment for lending institutions. All firms (foreign, private and domestically owned, and State-owned) are credit rationed, including foreign firms. State-owned firms do not have an investment behaviour compatible with profit maximisation, a result which emphasises the soft budget constraint persistence (but not through the providing with soft credit). For these firms, wages increase together with investment.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 403.

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Length: pages
Date of creation: 01 Nov 2001
Date of revision:
Handle: RePEc:wdi:papers:2001-403

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Related research

Keywords: Investment; credit rationing; soft budget constraint; ownership; transition to a market economy; Hungary;

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References

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  1. Lubomír Lízal & Jan Svejnar, 2002. "Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 353-370, May.
  2. 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.
  3. Halpern, László & Kõrösi, Gábor, 2000. "Efficiency and Market Share in the Hungarian Corporate Sector," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2544, C.E.P.R. Discussion Papers.
  4. Sophie Brana & Mathilde Maurel & Jérôme Sgard, 1999. "Enterprise Adjustment and the Role of Bank Credit in Russia: Evidence from a 420 Firm's Qualitative Survey," Working Papers 1999-06, CEPII research center.
  5. Grosfeld, Irena & Tressel, Thierry, 2001. "Competition, Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2888, C.E.P.R. Discussion Papers.
  6. Laszlo Halpern & Gabor Korosi, 2000. "Efficiency and Market Share in Hungarian Corporate Sector," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 333, William Davidson Institute at the University of Michigan.
  7. Cull, Robert & Xu, Lixin Colin, 2000. "Bureaucrats, State Banks, and the Efficiency of Credit Allocation: The Experience of Chinese State-Owned Enterprises," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 1-31, March.
  8. Saul Estrin & Jozef Konings & Zbigniew Zolkiewski & Manuela Angelucci, 2001. "The Effect of Ownership and Competitive Pressure on Firm Performance in Transition Countries. Micro Evidence from Bulgaria, Romania and Poland," LICOS Discussion Papers, LICOS - Centre for Institutions and Economic Performance, KU Leuven 10401, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  9. Kaplan, Steven N & Zingales, Luigi, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(1), pages 169-215, February.
  10. R. Glenn Hubbard, 1997. "Capital-Market Imperfections and Investment," NBER Working Papers 5996, National Bureau of Economic Research, Inc.
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Cited by:
  1. Zinych, Nataliya & Odening, Martin, 2009. "How Costly are (Agricultural) Investments during Economic Transition? A Critical Literature Appraisal," 2009 Conference, August 16-22, 2009, Beijing, China, International Association of Agricultural Economists 50319, International Association of Agricultural Economists.
  2. Gatti, Roberta & Love, Inessa, 2006. "Does access to credit improve productivity ? Evidence from Bulgarian firms," Policy Research Working Paper Series 3921, The World Bank.
  3. Butler, Alexander W. & Cornaggia, Jess, 2011. "Does access to external finance improve productivity? Evidence from a natural experiment," Journal of Financial Economics, Elsevier, Elsevier, vol. 99(1), pages 184-203, January.
  4. Vlad Ivanenko, 2001. "Testing Russia's Virtual Economy," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 428, William Davidson Institute at the University of Michigan.

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