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Investment, Credit Rationing and the Soft Budget Constraint: Evidence from Czech Panel Data

Lubomir Lizal and Jan Svejnar ()

No 363, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

Abstract: Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing bank loans to firms and the high rate of investment of large state owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit-maximization.

Keywords: Investment; restructuring; credit rationing; soft budget constraint; ownership; legal status; transition to a market economy (search for similar items in EconPapers)
JEL-codes: E22 G32 P21 D21 D92 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mfd
Date: 2001-02-01
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