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Budget Constraints and Profitability: Evidence from a Transition Economy

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  • Marian Rizov

Abstract

A conceptual framework for analyzing the credit rationing and the link between credit access and profitability is developed. The empirical analysis using data from manufacturing firms in Bulgaria, provides direct estimates of credit rationing and its impact on profitability in transition economies. The results from the switching regression suggest that the presence of credit market constraints does impinge on profitability of credit rationed firms and support the credit crunch hypothesis for periods following the financial market collapse as a result of previous soft budget constraints.

Suggested Citation

  • Marian Rizov, 2002. "Budget Constraints and Profitability: Evidence from a Transition Economy," LICOS Discussion Papers 11602, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
  • Handle: RePEc:lic:licosd:11602
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    File URL: http://www.econ.kuleuven.be/licos/publications/dp/dp116.pdf
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    References listed on IDEAS

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    1. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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    6. Budina, Nina & Garretsen, Harry & Jong, Eelke de, 1999. "Liquidity constraints and investment in transition economies : the case of Bulgaria," Research Report 00E05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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    Cited by:

    1. Oliver Gloede & Ornsiri Rungruxsirivorn, 2013. "Local Financial Development and Household Welfare: Microevidence from Thai Households," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 49(4), pages 22-45, July.
    2. Rizov, Marian, 2003. "The price of EU accession An insight into the Bulgarian real estate market," MPRA Paper 70583, University Library of Munich, Germany.

    More about this item

    Keywords

    credit rationing; profitability; economies in transition; Bulgaria;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • P2 - Economic Systems - - Socialist Systems and Transition Economies

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