Financing enterprises in the Czech Republic: the importance of firm-specific variables

Debora Revoltella
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Debora Revoltella: [n.a.]

No 102, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: This paper investigates the effects of firm specific variables on indebtedness, and thus financing decisions. A structural equation model with latent variables is estimated to show how size, profitability, foreign partnership, volatility of earnings, collateral availability and growth potential affect total, short term and bank indebtedness for each firm. The main results concern the role of size and growth in determining the availability of credit to enterprises. It is also shown that the most profitable firms, owing to high costs of credit and general market inefficiencies, prefer to use internal resources and thus neglect credit markets. When distinguishing among different forms of debt, bank debt seems to be the one that imposes the strongest financial discipline on enterprises. Evidence is provided for a change in allocation policies of banks. The empirical evidence suggests some policy conclusions. It is noted that if banks have the right incentives (and the legal regulation of property should reinforce them), they are the best engine for transformation of the industrial sector. Furthermore, the paper suggests that small and medium enterprises should be provided with financial support, given that these productive units are strongly discriminated against in the official credit market.

Pages: 27
Date: 1998-01
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:102

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