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

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  • Emilio Colombo

    (Department of Economics, University of Milan-Bicocca)

  • Luca Stanca

    (Department of Economics, University of Milan-Bicocca)

Abstract

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.

Suggested Citation

  • Emilio Colombo & Luca Stanca, 2003. "Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms," Working Papers 68, University of Milano-Bicocca, Department of Economics, revised Dec 2003.
    • Handle: RePEc:mib:wpaper:68
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    References listed on IDEAS

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    Cited by:

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    2. Carlos Carreira & Filipe Silva, 2010. "No Deep Pockets: Some Stylized Empirical Results On Firms’ Financial Constraints," Journal of Economic Surveys, Wiley Blackwell, vol. 24(4), pages 731-753, September.
    3. Ismail, Mohd Adib & ibrahim, Mansor & zainal, Mohd & Yusoff, Mohammed, 2013. "Was Bail-Out A Success? Evidence from the Investment-Cash Flow Relationship," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 47(1), pages 31-40.
    4. Mykhayliv, Dariya & Zauner, Klaus G., 2017. "The impact of equity ownership groups on investment: Evidence from Ukraine," Economic Modelling, Elsevier, vol. 64(C), pages 20-25.
    5. Zinych, Nataliya & Odening, Martin, 2009. "How Costly are (Agricultural) Investments during Economic Transition? A Critical Literature Appraisal," 2009 Conference, August 16-22, 2009, Beijing, China 50319, International Association of Agricultural Economists.
    6. Mykhayliv, Dariya & Zauner, Klaus G., 2013. "Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 265-278.

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    More about this item

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • P31 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

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