Capital Investment and Determinants of Financial Constraints in Estonia

Posted: 4 Dec 2009

See all articles by Bersant Hobdari

Bersant Hobdari

Copenhagen Business School

Derek C. Jones

Hamilton College - Economics Department

Niels Mygind

Copenhagen Business School - Center for East European Studies (CEES)

Date Written: 2009

Abstract

Unlike previous empirical work concerning investment behavior and the determinants of liquidity constraints, we use a switching regression framework when sample separation is unknown and endogenous and firms are assumed to operate either in the financially constrained or in the financially unconstrained regime. By using new panel data for Estonian companies during 1993 through 2002 we find that: (i) investment behavior is characterized by two distinct regimes; (ii) the likelihood of being financially constrained is higher in firms that are recently privatized, small and where ownership is concentrated in the hands of insiders and the state; (iii) the actual probabilities of operating in the financially constrained regime are quite high and essentially stable during the whole period under consideration; (iv) ownership structure affects investment beyond its indirect effects through financial constraints.

Keywords: Corporate investment, Liquidity constraints, Insider ownership, Switching regression, Soft budget constraint

JEL Classification: C33, D21, D92, E22, G32, J54, P21

Suggested Citation

Hobdari, Bersant and Jones, Derek C. and Mygind, Niels, Capital Investment and Determinants of Financial Constraints in Estonia (2009). Economic Systems, Vol. 33, No. 4, 2009. Available at SSRN: https://ssrn.com/abstract=1517309

Bersant Hobdari (Contact Author)

Copenhagen Business School ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

Derek C. Jones

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4381 (Phone)
315-859-4477 (Fax)

Niels Mygind

Copenhagen Business School - Center for East European Studies (CEES) ( email )

Howitzvej 60
Frederiksberg, 2000
Denmark
(+45) 38 15 30 32 (Phone)
(+45) 38 15 30 37 (Fax)

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