On the causes of soft budget constraints: Firm-level evidence from Bulgaria and Romania
- 19 May 2004
- book chapter
- Published by Emerald in Advances in the Economic Analysis of Participatory & Labor-Managed Firms
Abstract
Since Kornai (1980), the adverse effects of soft budget constraints have been well-documented in the literature. More recently, several theoretical explanations for the presence of soft budget constraints have been put forward. The purpose of this paper is to empirically test these theories on the causes of soft budget constraints. We therefore use a panel data set, consisting of company account data for Bulgarian and Romanian manufacturing firms, covering the period 1995–1999. Our results suggest that the probability of finding soft budget constraints importantly depends on the degree of competition within the sector and on the ownership structure of the firm. We further find that sociopolitical concerns about employment increase the probability of soft budget constraints, but only when firms are loss making. Thus, our empirical results largely confirm the hypotheses that competition, privatization, and firm size matter in explaining soft budget constraints, as is suggested in the theoretical models on the causes of soft budget constraints.This publication has 21 references indexed in Scilit:
- Market discipline and corporate efficiency: evidence from BulgariaCanadian Journal of Economics/Revue canadienne d'économique, 2000
- Institutions, Innovations, and GrowthThe American Economic Review, 1999
- Slack in the state-owned enterprise: An evaluation of the impact of soft-budget constraintsInternational Journal of Industrial Organization, 1998
- Causes of the Soft Budget Constraint: Evidence on Three ExplanationsJournal of Comparative Economics, 1998
- Bureaucratic Control and the Soft Budget ConstraintJournal of Comparative Economics, 1998
- Soft budget constraints and credit crunches in financial transitionEuropean Economic Review, 1997
- Transition as a process of large‐scale institutional changeEconomics of Transition, 1996
- Credit and Efficiency in Centralized and Decentralized EconomiesThe Review of Economic Studies, 1995
- The no-exit economy: Soft budget constraints and the fate of economic reforms in developing countriesWorld Development, 1994
- Interenterprise Arrears in Transforming Economies: The Case of RomaniaStaff Papers, 1993