The Determinants of Borrowing by Newly Exchange-listed Firms in Romania: When Adverse Selection Meets Cronyism

Calin Valsan

Post-Communist Economies, 2005, vol. 17, issue 1, 109-123

Abstract: Analysis of 580 Romanian firms listed on the Bucharest Stock Exchange and RASDAQ during 1997 and 1998 reveals that corporate borrowing was influenced by budget constraints, adverse selection and ownership structure. These exchange-listed corporations carried a very low level of short-term debt, were relatively profitable, paid very little dividend and relied mostly on internal capital. The negative relationship between financing needs and new borrowing suggests that severe adverse selection might have played a significant role here. Firms owned by Romanian nationals appeared to have easier access to credit than those owned by foreign investors, management or employees or other Romanian institutional investors: this finding testifies to political cronyism.

Date: 2005
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DOI: 10.1080/14631370500052811

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