The Limits of Discipline

Roman Frydman, Cheryl Gary, Marek Hessel and Andrzej Rapaczynski
Additional contact information
Roman Frydman: Department of Economics, New York University
Cheryl Gary: The World Bank
Marek Hessel: School of Business, Fordham University
Andrzej Rapaczynski: School of Law, Columbia University

No 5, Transition Economics Series from Institute for Advanced Studies

Abstract: This paper, based on a large sample of mid-sized manufacturing firms in the Czech Republic, Hungary, and Poland, examines differences in the behavior of state and private companies in short-term credit markets in transition economies. The study offers three main conclusions. First, we find that state enterprises represent a higher credit risk both because of their inferior economic performance and because of their lesser willingness or propensity to meet their payment obligations. Second, the brunt of the state firms' lower creditworthiness is borne by their state creditors, as state enterprises deflect the higher risk away from private creditors. Third, this transfer of risks from private to state creditors is possible because state creditors impose significantly "softer" financial discipline on state firms. Inasmuch as such softness may reflect unwillingness to accept a likely demise of a large number of state firms that are in principle capable of successful restructuring through ownership changes, we conclude that the imposition of financial discipline is not sufficient to remedy ownership and governance-related deficiencies of corporate performance.

Keywords: Ownership; Financial Discipline; Performance; Transition (search for similar items in EconPapers)
JEL-codes: G32 P17 P31 (search for similar items in EconPapers)
Pages: 38 pages
Date: 1999-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://irihs.ihs.ac.at/id/eprint/1141 First version, 1999 (application/pdf)

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