IDEAS home Printed from https://ideas.repec.org/a/mes/eaeuec/v56y2018i2p99-121.html
   My bibliography  Save this article

Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic

Author

Listed:
  • Jiří Schwarz
  • Martin Pospíšil

Abstract

Using investment–cash flow sensitivity to analyze financial constraints over the period 2006–2011 in the Czech Republic, we find that healthy companies were financially constrained both before and after the 2008 crisis. There is robust evidence that both the cash flow and the level of debt have a positive and significant impact on the investment rate. Although companies going bankrupt had significantly higher levels of external debt and bank loans, they did not manifest any investment–cash flow sensitivity in the pre-crisis period, which indicates that they were probably not financially constrained at all. After the 2008 crisis, companies that would later declare bankruptcy began to become financially constrained as well.

Suggested Citation

  • Jiří Schwarz & Martin Pospíšil, 2018. "Bankruptcy, Investment, and Financial Constraints: Evidence from the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 56(2), pages 99-121, March.
    • Handle: RePEc:mes:eaeuec:v:56:y:2018:i:2:p:99-121
    DOI: 10.1080/00128775.2017.1407221
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/00128775.2017.1407221
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/00128775.2017.1407221?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Traci L. Mach & John D. Wolken, 2012. "Examining the Impact of Credit Access on Small Firm Survivability," Contributions to Economics, in: Giorgio Calcagnini & Ilario Favaretto (ed.), Small Businesses in the Aftermath of the Crisis, edition 127, pages 189-210, Springer.
    2. Felix Noth & Andrea Gauselmann, 2016. "Decision-Making Power in Foreign Subsidiaries and its Effect on Financial Constraints: An Analysis for Selected European Transition Economies on the Basis of the IWH FDI Micro Database 2013," Eastern European Economics, Taylor & Francis Journals, vol. 54(6), pages 459-472, November.
    3. Ms. Marialuz Moreno Badia & Veerle Slootmaekers, 2009. "The Missing Link Between Financial Constraints and Productivity," IMF Working Papers 2009/072, International Monetary Fund.
    4. Patrick Musso & Stefano Schiavo, 2008. "The impact of financial constraints on firm survival and growth," Journal of Evolutionary Economics, Springer, vol. 18(2), pages 135-149, April.
    5. Ağca, Şenay & Mozumdar, Abon, 2017. "Investment–Cash Flow Sensitivity: Fact or Fiction?," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(3), pages 1111-1141, June.
    6. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    7. Mark Gertler & Simon Gilchrist, 1994. "Monetary Policy, Business Cycles, and the Behavior of Small Manufacturing Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 309-340.
    8. Bank for International Settlements, 2010. "The global crisis and financial intermediation in emerging market economies," BIS Papers, Bank for International Settlements, number 54.
    9. Tomas Havranek & Zuzana Irsova & Jiri Schwarz, 2016. "Dynamic elasticities of tax revenue: evidence from the Czech Republic," Applied Economics, Taylor & Francis Journals, vol. 48(60), pages 5866-5881, December.
    10. Avery, Robert B. & Bostic, Raphael W. & Samolyk, Katherine A., 1998. "The role of personal wealth in small business finance," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 1019-1061, August.
    11. Jarko Fidrmuc & Roman Horváth & Eva Horváthová, 2010. "Corporate Interest Rates and the Financial Accelerator in the Czech Republic," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 46(4), pages 41-54, January.
    12. Stephen D. Oliner & Glenn D. Rudebusch, 1996. "Is there a broad credit channel for monetary policy?," Economic Review, Federal Reserve Bank of San Francisco, pages 3-13.
    13. Klaus Gugler & Dennis C. Mueller & B. Burcin Yurtoglu, 2004. "Marginal q, Tobin’s q, Cash Flow, and Investment," Southern Economic Journal, John Wiley & Sons, vol. 70(3), pages 512-531, January.
    14. Santiago Carbó-Valverde & Francisco Rodríguez-Fernández & Gregory F. Udell, 2009. "Bank Market Power and SME Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 309-340.
    15. Hovakimian, Gayane & Titman, Sheridan, 2006. "Corporate Investment with Financial Constraints: Sensitivity of Investment to Funds from Voluntary Asset Sales," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 357-374, March.
    16. Anca Pruteanu, 2004. "Was There Evidence of Credit Rationing in the Czech Republic?," Eastern European Economics, Taylor & Francis Journals, vol. 42(5), pages 58-72, September.
    17. Clarke, George R.G. & Cull, Robert & Kisunko, Gregory, 2012. "External finance and firm survival in the aftermath of the crisis: Evidence from Eastern Europe and Central Asia," Journal of Comparative Economics, Elsevier, vol. 40(3), pages 372-392.
    18. Havranek, Tomas & Irsova, Zuzana & Lesanovska, Jitka, 2016. "Bank efficiency and interest rate pass-through: Evidence from Czech loan products," Economic Modelling, Elsevier, vol. 54(C), pages 153-169.
    19. Ann E. Harrison & Inessa Love & Margaret S. McMillan, 2022. "Global capital flows and financing constraints," World Scientific Book Chapters, in: Globalization, Firms, and Workers, chapter 8, pages 181-213, World Scientific Publishing Co. Pte. Ltd..
    20. Bertoni, Fabio & Croce, Annalisa & Guerini, Massimiliano, 2015. "Venture capital and the investment curve of young high-tech companies," Journal of Corporate Finance, Elsevier, vol. 35(C), pages 159-176.
    21. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    22. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393, Elsevier.
    23. Steven N. Kaplan & Luigi Zingales, 2000. "Investment-Cash Flow Sensitivities Are Not Valid Measures of Financing Constraints," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(2), pages 707-712.
    24. Agca, Senay & Mozumdar, Abon, 2008. "The impact of capital market imperfections on investment-cash flow sensitivity," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 207-216, February.
    25. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    26. Toni M. Whited, 2001. "Is It Inefficient Investment that Causes the Diversification Discount?," Journal of Finance, American Finance Association, vol. 56(5), pages 1667-1691, October.
    27. Simon Gilchrist & Charles Himmelberg, 1999. "Investment: Fundamentals and Finance," NBER Chapters, in: NBER Macroeconomics Annual 1998, volume 13, pages 223-274, National Bureau of Economic Research, Inc.
    28. Carpenter, Robert E. & Guariglia, Alessandra, 2008. "Cash flow, investment, and investment opportunities: New tests using UK panel data," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1894-1906, September.
    29. Gayané Hovakimian, 2009. "Determinants of Investment Cash Flow Sensitivity," Financial Management, Financial Management Association International, vol. 38(1), pages 161-183, March.
    30. Hobdari, Bersant & Jones, Derek C. & Mygind, Niels, 2009. "Capital investment and determinants of financial constraints in Estonia," Economic Systems, Elsevier, vol. 33(4), pages 344-359, December.
    31. Inessa Love, 2003. "Financial Development and Financing Constraints: International Evidence from the Structural Investment Model," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 765-791, July.
    32. Billor, Nedret & Hadi, Ali S. & Velleman, Paul F., 2000. "BACON: blocked adaptive computationally efficient outlier nominators," Computational Statistics & Data Analysis, Elsevier, vol. 34(3), pages 279-298, September.
    33. Campello, Murillo & Graham, John R. & Harvey, Campbell R., 2010. "The real effects of financial constraints: Evidence from a financial crisis," Journal of Financial Economics, Elsevier, vol. 97(3), pages 470-487, September.
    34. Tom Berglund, 2011. "The elusive marginal q," Applied Financial Economics, Taylor & Francis Journals, vol. 21(20), pages 1489-1493.
    35. Brandon Julio & Youngsuk Yook, 2012. "Political Uncertainty and Corporate Investment Cycles," Journal of Finance, American Finance Association, vol. 67(1), pages 45-84, February.
    36. Sudheer Chava & Michael R. Roberts, 2008. "How Does Financing Impact Investment? The Role of Debt Covenants," Journal of Finance, American Finance Association, vol. 63(5), pages 2085-2121, October.
    37. Moshirian, Fariborz & Nanda, Vikram & Vadilyev, Alexander & Zhang, Bohui, 2017. "What drives investment–cash flow sensitivity around the World? An asset tangibility Perspective," Journal of Banking & Finance, Elsevier, vol. 77(C), pages 1-17.
    38. Lubomír Lízal & Jan Svejnar, 2002. "Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 353-370, May.
    39. Vermeulen, Philip & Mizen, Paul, 2005. "Corporate investment and cash flow sensitivity: what drives the relationship?," Working Paper Series 485, European Central Bank.
    40. Colombo, Massimo G. & Croce, Annalisa & Guerini, Massimiliano, 2013. "The effect of public subsidies on firms’ investment–cash flow sensitivity: Transient or persistent?," Research Policy, Elsevier, vol. 42(9), pages 1605-1623.
    41. Behr, Patrick & Norden, Lars & Noth, Felix, 2013. "Financial constraints of private firms and bank lending behavior," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3472-3485.
    42. Jan Frait & Simona Malovana & Vladimir Tomsik, 2015. "The Interaction of Monetary and Macroprudential Policies in the Pursuit of the Central Bank's Primary Objectives," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2014/2015, chapter 0, pages 110-120, Czech National Bank.
    43. Armen Hovakimian & Gayané Hovakimian, 2009. "Cash Flow Sensitivity of Investment," European Financial Management, European Financial Management Association, vol. 15(1), pages 47-65, January.
    44. Cai, Jing & Harrison, Ann, 2011. "The value-added tax reform puzzle," Policy Research Working Paper Series 5788, The World Bank.
    45. Sylvain Weber, 2010. "bacon: An effective way to detect outliers in multivariate data using Stata (and Mata)," Stata Journal, StataCorp LP, vol. 10(3), pages 331-338, September.
    46. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    47. Ben S. Bernanke & Julio J. Rotemberg (ed.), 1999. "NBER Macroeconomics Annual 1998," MIT Press Books, The MIT Press, edition 1, volume 1, number 026252256x, April.
    48. Konings, Jozef & Rizov, Marian & Vandenbussche, Hylke, 2003. "Investment and financial constraints in transition economies: micro evidence from Poland, the Czech Republic, Bulgaria and Romania," Economics Letters, Elsevier, vol. 78(2), pages 253-258, February.
    49. Holton, Sarah & Lawless, Martina & McCann, Fergal, 2012. "Firm Credit in Europe: A Tale of Three Crises," Research Technical Papers 04/RT/12, Central Bank of Ireland.
    50. Dirk Engel & Joel Stiebale, 2014. "Private equity, investment and financial constraints: firm-level evidence for France and the United Kingdom," Small Business Economics, Springer, vol. 43(1), pages 197-212, June.
    51. Giorgio Calcagnini & Ilario Favaretto (ed.), 2012. "Small Businesses in the Aftermath of the Crisis," Contributions to Economics, Springer, edition 127, number 978-3-7908-2852-8.
    52. Cinquegrana, Giuseppe & Donati, Cristiana & Sarno, Domenico, 2012. "Financial constraints and relationship lending in the growth of italian SMEs," MPRA Paper 39825, University Library of Munich, Germany.
    53. Mulier, Klaas & Schoors, Koen & Merlevede, Bruno, 2016. "Investment-cash flow sensitivity and financial constraints: Evidence from unquoted European SMEs," Journal of Banking & Finance, Elsevier, vol. 73(C), pages 182-197.
    54. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    55. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 169-215.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:cnb:ocpubv:rb16/1 is not listed on IDEAS
    2. Gökberk Can & Samet Günay & Murat Ocak, 2021. "How does size affect capital expenditures? Evidence from Borsa Istanbul," SN Business & Economics, Springer, vol. 1(1), pages 1-28, January.
    3. repec:cnb:ocpubv:rb16/2 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Martin Pospisil & Jiri Schwarz, 2014. "Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy," Working Papers 2014/01, Czech National Bank.
    2. Milos Markovic & Michael A. Stemmer, 2017. "Firm Growth Dynamics and Financial Constraints: Evidence from Serbian Firms," Documents de travail du Centre d'Economie de la Sorbonne 17012, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    3. Spaliara, Marina-Eliza, 2009. "Do financial factors affect the capital-labour ratio? Evidence from UK firm-level data," Journal of Banking & Finance, Elsevier, vol. 33(10), pages 1932-1947, October.
    4. Vijayakumaran, Ratnam, 2021. "Impact of managerial ownership on investment and liquidity constraints: Evidence from Chinese listed companies," Research in International Business and Finance, Elsevier, vol. 55(C).
    5. Gugler, Klaus & Peev, Evgeni & Segalla, Esther, 2013. "The internal workings of internal capital markets: Cross-country evidence," Journal of Corporate Finance, Elsevier, vol. 20(C), pages 59-73.
    6. repec:lic:licosd:20808 is not listed on IDEAS
    7. Cafer Kaplan & Erdal Ozmen & Cihan Yalcin, 2006. "The Determinants and Implications of Financial Asset Holdings of Non-Financial Firms in Turkey : An Emprical Investigation," Working Papers 0606, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    8. Ms. Marialuz Moreno Badia & Veerle Slootmaekers, 2009. "The Missing Link Between Financial Constraints and Productivity," IMF Working Papers 2009/072, International Monetary Fund.
    9. Gaurav Gupta & Jitendra Mahakud, 2019. "Alternative measure of financial development and investment-cash flow sensitivity: evidence from an emerging economy," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-28, December.
    10. Gül, Selçuk & Taştan, Hüseyin, 2020. "The impact of monetary policy stance, financial conditions, and the GFC on investment-cash flow sensitivity," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 692-707.
    11. Álvarez, Roberto & Bertin, Mauricio Jara, 2016. "Banking competition and firm-level financial constraints in Latin America," Emerging Markets Review, Elsevier, vol. 28(C), pages 89-104.
    12. Naeem, Kashif & Li, Matthew C., 2019. "Corporate investment efficiency: The role of financial development in firms with financing constraints and agency issues in OECD non-financial firms," International Review of Financial Analysis, Elsevier, vol. 62(C), pages 53-68.
    13. Théo Nicolas, 2022. "Short-term financial constraints and SMEs’ investment decision: evidence from the working capital channel," Small Business Economics, Springer, vol. 58(4), pages 1885-1914, April.
    14. Théo Nicolas, 2019. "How Do Short-term Financial Constraints Affect SMEs’ Long-Term Investment: Evidence from the Working Capital Channel," Working papers 731, Banque de France.
    15. Sevcan Yesiltas, 2009. "Financing Constraints and Investment: The Case of Turkish Manufacturing Firms," 2009 Meeting Papers 874, Society for Economic Dynamics.
    16. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    17. Borisova, Ginka & Brown, James R., 2013. "R&D sensitivity to asset sale proceeds: New evidence on financing constraints and intangible investment," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 159-173.
    18. Mykhayliv, Dariya & Zauner, Klaus G., 2013. "Investment behavior and ownership structures in Ukraine: Soft budget constraints, government ownership and private benefits of control," Journal of Comparative Economics, Elsevier, vol. 41(1), pages 265-278.
    19. Caggese, Andrea, 2007. "Testing financing constraints on firm investment using variable capital," Journal of Financial Economics, Elsevier, vol. 86(3), pages 683-723, December.
    20. Andrés Rodríguez‐Pose & Roberto Ganau & Kristina Maslauskaite & Monica Brezzi, 2021. "Credit constraints, labor productivity, and the role of regional institutions: Evidence from manufacturing firms in Europe," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 299-328, March.
    21. Beata S. Javorcik & Mariana Spatareanu, 2008. "Liquidity Constraints and Linkages with Multinationals," LICOS Discussion Papers 22508, LICOS - Centre for Institutions and Economic Performance, KU Leuven.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mes:eaeuec:v:56:y:2018:i:2:p:99-121. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/MEEE20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.