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Investment decisions and the soft budget constraint: evidence from Hungarian manufacturing firms

Emilio Colombo () and Luca Stanca ()

MPRA Paper from University Library of Munich, Germany

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.

Keywords: Investment; financial constraints; soft budget constraint; transition (search for similar items in EconPapers)
JEL-codes: G31 P31 (search for similar items in EconPapers)
Date: 2006
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Published in The Economics of Transition 14.1(2006): pp. 171-198

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Working Paper: Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms (2003) Downloads
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