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Firm‐level investment under imperfect capital markets in Ukraine

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  • Oleksandr Shcherbakov

Abstract

This paper develops and estimates a model of firm‐level fixed capital investment where firms may be unable to invest optimally due to liquidity and borrowing constraints. Firms rationally anticipate these constraints and make dynamically optimal investment decisions. Structural parameters are estimated using data from the Ukrainian manufacturing sector for the period 1993–1998. The estimation results suggest significant heterogeneity across industries, with 8%–29% of firms facing binding constraints on investment. These constraints are persistent over time. To make optimal investments, 24%–64% of firms must borrow to complement their own resources. The characteristics of constrained firms and the relationship between industry institutions and the level of financial constraints are discussed.

Suggested Citation

  • Oleksandr Shcherbakov, 2022. "Firm‐level investment under imperfect capital markets in Ukraine," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(1), pages 227-255, February.
    • Handle: RePEc:bla:jemstr:v:31:y:2022:i:1:p:227-255
    DOI: 10.1111/jems.12458
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    1. Zabavnik, Darja & Verbič, Miroslav, 2023. "The effects of financial frictions on Slovenian companies: A panel VAR approach," Finance Research Letters, Elsevier, vol. 58(PC).

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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