Working Paper: CEPR ID: DP4194
Authors: Enrico C. Perotti; Luka Vesnaver
Abstract: This Paper studies the financing of enterprise investment in listed Hungarian firms during the first years of transition. These firms were selected for listing on the exchange and presumably had better access to external capital. In particular, we look for evidence of financial constraints that limit real investment and attempt to identify the effect of different ownership and governance structures. The empirical results indicate significant financial constraints even among the better-known firms in the period from 1992 to 1998. Consistent with studies from other countries, we find evidence that foreign-owned firms do not suffer from limited external finance. Previous leverage can strain investment, suggesting that hard budget constraints are binding. State ownership does not alleviate capital constraints and larger firms do not appear to be less constrained than the smaller firms, which contrasts with the evidence in Western countries.
Keywords: financial constraints; foreign investment; governance; transition
JEL Codes: G31; P23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| cash flow (E50) | investment (G31) |
| Tobin's Q (G19) | investment (G31) |
| foreign ownership (F23) | investment sensitivity to cash flow (G31) |
| domestic ownership (F23) | investment sensitivity to cash flow (G31) |
| leverage (G24) | investment (G31) |
| state ownership (H13) | capital constraints (D24) |