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Investments, Credit, and Corporate Financial Distress: Evidence from Central and Eastern Europe

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  • Kadri Männasoo
  • Peeter Maripuu
  • Aaro Hazak

Abstract

Although they are instrumental for economic development, productivity-enhancing corporate investments may increase the financial vulnerability of companies, especially in an economic and financial crisis. We employ an instrumental probit model with the aim of finding evidence for the investment and credit patterns that led companies into financial distress during the global financial crisis 2009–2010. The company-level micro-data for our study on three Central and East European countries—Hungary, Bulgaria, Romania and two Baltic countries, Latvia and Lithuania—originates from two independent surveys, the Business Environment and Enterprise Performance Survey conducted in 2008 and the Financial Crisis Survey conducted in 2009/2010. Both were carried out jointly by the EBRD and the World Bank. Our results emphasize a substantial adverse impact from investment intensity and debt financing on company financial soundness during a crisis. On top of that, we discover a strong non-linear pattern in the sensitivity of company distress to its investment-financing nexus.

Suggested Citation

  • Kadri Männasoo & Peeter Maripuu & Aaro Hazak, 2018. "Investments, Credit, and Corporate Financial Distress: Evidence from Central and Eastern Europe," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(3), pages 677-689, February.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:3:p:677-689
    DOI: 10.1080/1540496X.2017.1300092
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    Cited by:

    1. Liu Wu & Zhen Shao & Changhui Yang & Tao Ding & Wan Zhang, 2020. "The Impact of CSR and Financial Distress on Financial Performance—Evidence from Chinese Listed Companies of the Manufacturing Industry," Sustainability, MDPI, vol. 12(17), pages 1-19, August.
    2. Ruubel, Raul, 2018. "Time dimensions of job autonomy in R&D work," SocArXiv n62qd, Center for Open Science.
    3. Zhang, Cheng & Yao, Yangyang & Zhou, Han, 2023. "External technology dependence and manufacturing TFP: Evidence from China," Research in International Business and Finance, Elsevier, vol. 64(C).

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