Liquidity Constraints and Investment in Transition Economies

The authors use firm level data on Bulgaria to investigate the impact of liquidity constraints on firms investment performance. Internal funds are a important determinant of investment in most industrial economies. The authors use a simple accelerator model of investment to test whether liquidity constraints are relevant in Bulgaria's case. Their estimates are based on data for 1993-95, before Bulgaria's financial crisis of 1996-97. It turns out that Bulgarian firms are liquidity-constrained and that firms size and financial structure help to distinguish between firms that are more and less liquidity-constrained. In the authors' view, liquidity constraints in transition economies should be interpreted in different ways than those in industrial economies. In Bulgaria, liquidity constraints, and hence access to external funds should be seen in the context of soft budget constraints and the financial systems failure to enforce the efficient allocation of funds. The relationship between liquidity constraints and firm characteristics may actually be the opposite of what is normally the case in industrial countries. In Bulgaria, lack of liquidity constraints may be a sign of financial weakness.

Bibliographic Details

Main Authors:	Budina, Nina, Garretsen, Harry, de Jong, Eelke
Format:	Working Paper biblioteca
Language:	English en_US
Published:	World Bank, Washington, DC 2000-01
Subjects:	ADVERSE SELECTION, ASSETS, ASYMMETRIC INFORMATION, BAD DEBT, BAD DEBTS, BALANCE SHEET, BANK CAPITAL, BANK LOANS, BANK PORTFOLIOS, BANKING SECTOR, BANKING SYSTEM, BANKRUPTCY, BANKRUPTCY PROCEDURES, BANKS, BORROWING, CAPITAL MARKETS, CASH FLOWS, CENTRALLY PLANNED ECONOMIES, CENTRALLY PLANNED ECONOMY, COMMERCIAL BANKS, COST OF CAPITAL, CREDIT RATIONING, DEBT, DEPRECIATION, DIVIDEND POLICY, ECONOMIC GROWTH, EMPIRICAL ANALYSIS, EMPIRICAL STUDIES, EXCHANGE RATE, EXOGENOUS VARIABLES, EXPECTED RETURN, EXPENDITURES, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL MARKETS, FINANCIAL RESOURCES, FINANCIAL SECTOR, FINANCIAL STRUCTURE, GDP, INDUSTRIAL ECONOMIES, INFLATION, INHERITANCE, LIQUIDATION, LIQUIDITY, MACROECONOMICS, MARKET ECONOMIES, MARKET INCENTIVES, MARKET VALUE, MORAL HAZARD, NET LOSS, NET WORTH, PERFECT INFORMATION, PERVERSE INCENTIVES, PORTFOLIOS, PRIVATE BANKS, PROFITABILITY, SHORT TERM DEBT, SOFT BUDGET CONSTRAINTS, STATE ENTERPRISES, TANGIBLE ASSETS, TIME SERIES, TRANSITION ECONOMIES, LIQUIDITY CONTROLS,
Online Access:	http://documents.worldbank.org/curated/en/2000/01/438413/liquidity-constraints-investment-transition-economies-case-bulgaria https://hdl.handle.net/10986/22280
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