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Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy

Author

Listed:
  • Martin Pospisil
  • Jiri Schwarz
Abstract
In this paper we use balance-sheet data and information on bankruptcy to study the relationship between investment, financial constraints, and bankruptcy in a post-transition country. Our data constitute a dynamic panel and cover the period 2006–2011, which also allows us to study the impact of the 2008 crisis on Czech companies. Using investment–cash flow sensitivity to analyze financial constraints we find there is robust evidence that cash flow and the level of debt have a positive and significant impact on the investment rate. By taking a closer look at individual subsamples we reveal that the existence of financial constraints, proxied by investment–cash flow sensitivity, is evident mainly after 2008 and in small and medium-sized enterprises. At the same time, we do not uncover any evidence that firms going bankrupt during our observed period faced more severe financial constraints. Moreover, companies going bankrupt had significantly higher levels of external debt and bank loans, which indicates that they may have been, in fact, less constrained than others.

Suggested Citation

  • Martin Pospisil & Jiri Schwarz, 2014. "Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy," Working Papers 2014/01, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2014/01
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    References listed on IDEAS

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    Cited by:

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    2. Petr Koráb & Jitka Pomenkova, 2014. "Financial Crisis and Financing Constraints of SMEs in Visegrad Countries," WIFO Working Papers 485, WIFO.
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    More about this item

    Keywords

    Bankruptcy; cash flow; credit rationing; financial constraints; investment; post-transition economy;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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