Discussion Paper Details

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Title: Enterprise Finance and Investment in Listed Hungarian Firms

Author(s): Enrico C Perotti and Luka Vesnaver

Publication Date: January 2004

Keyword(s): financial constraints, foreign investment, governance and transition

Programme Area(s): Institutions and Economic Performance and Transition Economics

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.

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Bibliographic Reference

Perotti, E and Vesnaver, L. 2004. 'Enterprise Finance and Investment in Listed Hungarian Firms'. London, Centre for Economic Policy Research.