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Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data

  • Lubomír Lízal
  • Jan Svejnar

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 1992-1998, we find that foreign-owned companies invest the most and cooperatives the least, that private firms do not invest more than state-owned ones, and that cooperatives and small firms are credit rationed. Given the large volume of nonperforming 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. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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Article provided by MIT Press in its journal The Review of Economics and Statistics.

Volume (Year): 84 (2002)
Issue (Month): 2 (May)
Pages: 353-370

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Handle: RePEc:tpr:restat:v:84:y:2002:i:2:p:353-370
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