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Investment decisions and the soft budget constraint

Investment decisions and the soft budget constraint This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has changed significantly after the introduction of major financial reforms, and that firms were affected differently depending on their ownership type. Reforms have hardened the budget constraint of private domestic firms, particularly small ones, and reduced informational problems for foreign‐owned firms. State‐owned firms remained subject to a soft budget constraint. In particular, small state firms became more sensitive to financial conditions, whereas large state firms were unaffected and kept operating under a soft budget constraint. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economics of Transition and Institutional Change Wiley

Investment decisions and the soft budget constraint

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References (47)

Publisher
Wiley
Copyright
Copyright © 2006 Wiley Subscription Services, Inc., A Wiley Company
ISSN
2577-6975
eISSN
2577-6983
DOI
10.1111/j.1468-0351.2006.00238.x
Publisher site
See Article on Publisher Site

Abstract

This paper investigates the investment behaviour of a large panel of Hungarian firms in the period 1989–99, in order to assess the impact of institutional and regulatory changes on the efficiency of credit allocation. We find that the role of financial factors for investment decisions has changed significantly after the introduction of major financial reforms, and that firms were affected differently depending on their ownership type. Reforms have hardened the budget constraint of private domestic firms, particularly small ones, and reduced informational problems for foreign‐owned firms. State‐owned firms remained subject to a soft budget constraint. In particular, small state firms became more sensitive to financial conditions, whereas large state firms were unaffected and kept operating under a soft budget constraint.

Journal

Economics of Transition and Institutional ChangeWiley

Published: Mar 1, 2006

Keywords: ; ; ; ; ;

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