Financial Conditions and Investment during the Transition: Evidence from Czech Firms

Lubomir Lizal and Jan Svejnar

No 399, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: In this paper, we examine net investment during the early stages of transition using micro data on the population of medium and large industrial firms in the Czech Republic during the 1992-95 period. We examine the relevance of alternative models of investment and test if investment behavior varies across categories of ownership and with the legal status of firms. Our analysis of depreciation leads us to the conclusion that replacement investment displays a similar pattern in many ownership-legal form categories of firms. Retained profit is found to be the major determinant of new investment and the estimate is statistically significant even when we use the most robust fixed effects estimates based on one-year differences. We find that enterprise profitability has a strong positive effect on investment in all types of firms except privately owned-limited liability companies and foreign owned and mixed ownership firms. These results are consistent with the financing-hierarchy and credit-rationng hypotheses which indicate that domestic firms cannot easily borrow investment funds externally and that net investment varies with retained profits. Firms take into account various stock measures of internal finance. In particular, a stock of cash, receivables, receivables overdue, payables, and payables overdue systematically affect net investment.

Keywords: investment; cash-flow; restructuring; ownership; legal status; transition to a market economy (search for similar items in EconPapers)
JEL-codes: D21 D92 E22 G32 P21 (search for similar items in EconPapers)
Pages: pages
Date: 2001-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Financial Conditions and Investment during the Transition: Evidence from Czech Firms (2001)
Working Paper: Financial Conditions and Investment during the Transition: Evidence from Czech Firms (2000)
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