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Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms

  • Emilio Colombo

    ()

    (Department of Economics, University of Milan-Bicocca)

  • Luca Stanca

    ()

    (Department of Economics, University of Milan-Bicocca)

This paper investigates the investment behaviour of a large panel of Hungarian firms during the transition period (1989-1999). We examine the role of financial factors and assess whether financial reforms have succeeded in increasing the efficiency of credit allocation. We find that reforms have hardened budget constraints of small private firms, and reduced informational problems for foreign firms. Small stateowned firms became more sensitive to financial conditions, whereas large state-owned firms were largely unaffected and kept operating under a soft budget constraint.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper68.pdf
File Function: First version, 2003
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Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 68.

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Length: 34 pages
Date of creation: Dec 2003
Date of revision: Dec 2003
Handle: RePEc:mib:wpaper:68
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  1. Stephen Oliner & Glenn Rudebusch & Daniel Sichel, 1993. "New and old models of business investment: a comparison of forecasting performance," Working Paper Series / Economic Activity Section 141, Board of Governors of the Federal Reserve System (U.S.).
  2. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities are not Valid Measures of Financing Constraints," NBER Working Papers 7659, National Bureau of Economic Research, Inc.
  3. Gertler, Mark, 1990. "Financial Capacity And Output Fluctuations In An Economy With Multiperiod Financial Relationships," Working Papers 90-44, C.V. Starr Center for Applied Economics, New York University.
  4. John P. Bonin & Istvan Abel, 2000. "Retail Banking in Hungary: A Foreign Affair?," William Davidson Institute Working Papers Series 356, William Davidson Institute at the University of Michigan.
  5. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 2000. "Investment-Cash Flow Sensitivities Are Useful: A Comment On Kaplan And Zingales," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 695-705, May.
  6. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  7. Steve Bond & Julie Elston & Jacques Mairesse & Benoit Mulkay, 1997. "Financial factors and investment in Belgium, France, German and the UK: A comparison using company panel data," IFS Working Papers W97/08, Institute for Fiscal Studies.
  8. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
  9. Gertler, M. & Gilchrist, S., 1993. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," Working Papers 93-02, C.V. Starr Center for Applied Economics, New York University.
  10. Michael Devereux & Fabio Schiantarelli, 1990. "Investment, Financial Factors, and Cash Flow: Evidence from U.K. Panel Data," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 279-306 National Bureau of Economic Research, Inc.
  11. John P. Bonin & Mark E. Schaffer, 1999. "Revisiting Hungary's Bankruptcy Episode," William Davidson Institute Working Papers Series 255, William Davidson Institute at the University of Michigan.
  12. Whited, Toni M, 1992. " Debt, Liquidity Constraints, and Corporate Investment: Evidence from Panel Data," Journal of Finance, American Finance Association, vol. 47(4), pages 1425-60, September.
  13. Chirinko, Robert S & Schaller, Huntley, 1995. "Why Does Liquidity Matter in Investment Equations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 527-48, May.
  14. Schaffer, Mark E., 1998. "Do Firms in Transition Economies Have Soft Budget Constraints? A Reconsideration of Concepts and Evidence," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 80-103, March.
  15. Emilio Colombo, 2001. "Determinants of corporate capital structure: evidence from Hungarian firms," Applied Economics, Taylor & Francis Journals, vol. 33(13), pages 1689-1701.
  16. Fumio Hayashi & Tohru Inoue, 1990. "The Relation Between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," NBER Working Papers 3326, National Bureau of Economic Research, Inc.
  17. Perotti, Enrico C & Vesnaver, Luka, 2004. "Enterprise Finance and Investment in Listed Hungarian Firms," CEPR Discussion Papers 4194, C.E.P.R. Discussion Papers.
  18. Hubbard, R Glenn & Kashyap, Anil K & Whited, Toni M, 1995. "International Finance and Firm Investment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(3), pages 683-701, August.
  19. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  20. Schaller, Huntley, 1990. "A Re-examination of the Q Theory of Investment Using U.S. Firm Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(4), pages 309-25, Oct.-Dec..
  21. Oliner, Stephen D & Rudebusch, Glenn D, 1992. "Sources of the Financing Hierarchy for Business Investment," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 643-54, November.
  22. Janet Mitchell, 1998. "Bankruptcy Experience in Hungary and the Czech Republic," William Davidson Institute Working Papers Series 211, William Davidson Institute at the University of Michigan.
  23. Budina, Nina & Garretsen, Harry & de Jong, Elke, 2000. "Liquidity constraints and investment in transition economies - the case of Bulgaria," Policy Research Working Paper Series 2278, The World Bank.
  24. Hoshi, Takeo & Kashyap, Anil & Scharfstein, David, 1991. "Corporate Structure, Liquidity, and Investment: Evidence from Japanese Industrial Groups," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 33-60, February.
  25. repec:cup:cbooks:9780521630689 is not listed on IDEAS
  26. Vermeulen, Philip, 2002. " Business Fixed Investment: Evidence of a Financial Accelerator in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 217-35, July.
  27. Blundell, Richard & Bond, Stephen & Devereux, Michael & Schiantarelli, Fabio, 1992. "Investment and Tobin's Q: Evidence from company panel data," Journal of Econometrics, Elsevier, vol. 51(1-2), pages 233-257.
  28. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
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