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Corporate Investment and Financial Crisis: Can Under- and Overinvestment Be Mitigated by Banks in an Emerging Market?

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  • Tsapin Andriy

    ()

  • Tsapin Oleksandr

    ()

Abstract

This study explores the question whether the problems of under- and overinvestment can be mitigated by banks. Using a unique matched dataset of Ukrainian companies and their main banks we apply robust IV-GMM-system, dynamic GMM-system techniques, and treatment effect model to estimate the role of banks incorporate investment. The available evidence shows that companies raise the use of bank loans in favorable times to accumulate working capital and spend it in the time of tight constraints. Ukrainian banks do lessen financial constraints spurring fi rms to invest more in the case of underinvestment. Banks also are able to restrain the companies from overinvestment but this impact depends signi cantly on the bank fi nancial health. Our fi ndings demonstrate that certain banks financed excessive corporate investment in pre-crisis period but this practice shrinks down with the onset of the crisis.

Suggested Citation

  • Tsapin Andriy & Tsapin Oleksandr, 2014. "Corporate Investment and Financial Crisis: Can Under- and Overinvestment Be Mitigated by Banks in an Emerging Market?," EERC Working Paper Series 14/04e, EERC Research Network, Russia and CIS.
  • Handle: RePEc:eer:wpalle:14/04e
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    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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