Investment, Credit Rationing, and the Soft Budget Constraint: Evidence from Czech Panel Data
School of International and Public Affairs, Columbia University, NY, USA; CEPR; IZA; CERGE-EI; University of Ljubljana
Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Czech National Bank (CNB)
Review of Economics and Statistics, Vol. 84, No. 2, May 2002, pp. 353-370
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 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing 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.
Keywords: investment, restructuring, credit rationing, soft budget constraint, ownership, legal status, transition to a market economy
JEL Classification: E22, G32, P21, D21, D92Accepted Paper Series
Date posted: October 4, 2001
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