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Firm investment in transition

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  • Marian Rizov

Abstract

In this paper a model based on the Euler equation of optimal capital accumulation in the presence of convex adjustment costs is developed and estimated. The theoretical model explicitly allows for differential financial status across firms. The empirical analysis uses Romanian manufacturing firm panel data to estimate dynamic investment models with the generalized method of moments (GMM‐IV) technique and tests the derived hypotheses. The results indicate that the model based on the perfect market assumptions is rejected. The version of the model that allows for differential financial status of firms by using a theoretically derived sample selection rule is not rejected by the data. Controlling for soft budget constraints, common for transition economies, further improves the performance of the model.

Suggested Citation

  • Marian Rizov, 2004. "Firm investment in transition," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 721-746, December.
    • Handle: RePEc:bla:etrans:v:12:y:2004:i:4:p:721-746
    DOI: 10.1111/j.0967-0750.2004.00200.x
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    2. Črnigoj, Matjaž & Verbič, Miroslav, 2014. "Financial constraints and corporate investments during the current financial and economic crisis: The credit crunch and investment decisions of Slovenian firms," Economic Systems, Elsevier, vol. 38(4), pages 502-517.
    3. Rizov, Marian, 2008. "Corporate capital structure and how soft budget constraints may affect it," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 22(4), pages 648-684.
    4. Nataliya Zinych & Martin Odening, 2009. "Capital market imperfections in economic transition: empirical evidence from Ukrainian agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 40(6), pages 677-689, November.
    5. Radek Zdeněk & Jana Lososová, 2020. "Investments of Czech farms located in less favoured areas after EU accession," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 66(2), pages 55-64.
    6. Raushan Bokusheva & Irina Bezlepkina & Alfons Oude Lansink, 2009. "Exploring Farm Investment Behaviour in Transition: The Case of Russian Agriculture," Journal of Agricultural Economics, Wiley Blackwell, vol. 60(2), pages 436-464, June.
    7. Fertő, Imre & Bakucs, Lajos Zoltán & Fogarasi, József, 2007. "A puha költségvetési korlát és a hitelpiaci tökéletlenségek hatása a beruházásokra a magyar mezőgazdaságban [The effect of soft budget constraint and credit-market imperfections on investments in Hungarian agriculture]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 322-333.
    8. Geoffroy Enjolras & Gilles Sanfilippo, 2018. "The role of debt in financing French farm investments," Post-Print hal-02048362, HAL.
    9. Hüttel, Silke & Mußhoff, Oliver & Odening, Martin & Zinych, Nataliya, 2008. "Estimating investment equations in imperfect capital markets," SFB 649 Discussion Papers 2008-016, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    10. Crisóstomo, Vicente Lima & López-Iturriaga, Félix Javier & Vallelado González, Eleuterio, 2014. "Nonfinancial companies as large shareholders alleviate financial constraints of Brazilian firm," Emerging Markets Review, Elsevier, vol. 18(C), pages 62-77.
    11. 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 50319, International Association of Agricultural Economists.
    12. Loïc Levi & Laure Latruffe & Aude Ridier, 2019. "Farm performance and investment decisions: evidence from the French (Brittany) dairy sector," Working Papers SMART 19-01, INRAE UMR SMART.
    13. Bokusheva, Raushan & Buchenrieder, Gertrud, 2006. "Contributions To The 4th Young Scientists Workshop On Agricultural Development In Central And Eastern Europe Ysw-2006," IAMO Discussion Papers 91964, Institute of Agricultural Development in Transition Economies (IAMO).
    14. Alessandra Guariglia & John Tsoukalas & Serafeim Tsoukas, 2010. "Investment, irreversibility, and financing constraints in transition economies," Discussion Papers 10/03, University of Nottingham, School of Economics.
    15. Lévi, Loïc & Latruffe, Laure & Ridier, Aude, 2016. "Farm investment and performance in the French (Brittany) dairy sector," 149th Seminar, October 27-28, 2016, Rennes, France 244951, European Association of Agricultural Economists.
    16. Ferto, Imre & Bakucs, Lajos Zoltan & Bojnec, Stefan & Latruffe, Laure, 2011. "Investment and Financial Constraints in European Agriculture: Evidence from France, Hungary and Slovenia," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114357, European Association of Agricultural Economists.
    17. Levi, Loic & Chavas, Jean-Paul, "undated". "How Does Eliminating Quotas Affect Firm Investment? Evidence from Dairy Farms," 2018 Annual Meeting, August 5-7, Washington, D.C. 273831, Agricultural and Applied Economics Association.

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