Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey

Carlin, Wendy; Fries, Steven; Schaffer, Mark E.; Seabright, Paul

doi:10.2139/ssrn.270320

Cited by 100 publications

(84 citation statements)

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“…Asset divestment can be forced on a firm when its survival is threatened. According to Carlin et al (2001), divestment may indicate restructuring and downsizing by firms that have difficulties in adapting to a new market environment. Using a World Bank survey covering 25 transition countries, they examine the determinants of firm restructuring and performance.…”

Section: The Defensive Restructuring Explanationmentioning

confidence: 99%

Negative Investment in China: Financing Constraints and Restructuring Versus Growth

2012

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Further information on publisher's website:http://www.dur.ac.uk/business/faculty/working-papers/ Publisher's copyright statement:Additional information: Use policyThe full-text may be used and/or reproduced, and given to third parties in any format or medium, without prior permission or charge, for personal research or study, educational, or not-for-prot purposes provided that:• a full bibliographic reference is made to the original source • a link is made to the metadata record in DRO • the full-text is not changed in any way The full-text must not be sold in any format or medium without the formal permission of the copyright holders.Please consult the full DRO policy for further details. AbstractThis paper attempts to address a puzzle in China's investment pattern: despite high aggregate investment and remarkable economic growth, negative net investment is commonly found at the microeconomic level. Using a large firm-level dataset, we test three hypotheses to explain the existence and extent of negative investment in each ownership group: what we term the efficiency (or restructuring) hypothesis, the (lack of) financing hypothesis, and the (slow) growth hypothesis. Our panel data probit estimations shows that negative investment by state-owned firms can be explained mainly by inefficiency: owing to over-investment or mis-investment in the past, these firms have had to restructure and to get rid of obsolete capital in the face of increasing competition and hardening budgets. The financing explanation holds for private firms, which have had to divest in order to raise capital. However, rapid economic growth weighs against both effects in all types of firms, with a larger impact for firms in the private and foreign sectors. A tobit model, estimated to examine the determinants of the amount of negative investment, yields similar conclusions.

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Section: The Defensive Restructuring Explanationmentioning

confidence: 99%

Negative Investment in China: Financing Constraints and Restructuring Versus Growth

2012

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“…As an example, the EBRD transition report ranks Belarus below all accession candidates with respect to enterprise reform and enforcement of financial discipline in the enterprise sector (EBRD, 2001, p. 14), while Carlin et al (2001) find on the basis of a comprehensive survey of 3,300 firms in 25 transition countries that the enforcement of HBCs is comparable in Belarus to the enforcement observed in the Czech Republic and Slovenia. Moreover, many indicators of SBCs are only available for few time-series observations, rendering an analysis of the impact of candidate status impossible.…”

Section: Empirical Evidencementioning

confidence: 99%

“…Furthermore, see the comprehensive surveys of Carlin et al, 2001 andFrydman et al, 2000. with probability 1 − p. Thus the expected price is…”

Section: Model Specificationmentioning

confidence: 99%

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Can EU conditionality remedy soft budget constraints in transition countries?

Brücker

Schröder

Weise

2005

Journal of Comparative Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in September 2003Abstract Soft budget constraints (SBCs) are a persistent feature of transition economies and have been blamed for i.a. a lack of fiscal consolidation and sluggish growth. EU eastward enlargement has -among other things -been conditioned on tackling SBCs. This paper analyzes such outside conditionality theoretically and empirically. First, modelling the SBC problem as a war of attrition between the applicant countries' governments and firms we find that outside conditionality can foster SBC hardening. Yet, toughening the EU stance or reducing the number of enlargement rounds may have ambiguous effects. Second, estimating SBC hardening in a partial adjustment model by measuring the reaction of employment to output changes we find that EU conditionality did indeed help candidates to fight SBCs. Abstract Soft budget constraints (SBCs) are a persistent feature of transition economies and have been blamed for i.a. a lack of fiscal consolidation and sluggish growth. EU eastward enlargement hasamong other things -been conditioned on tackling SBCs. This paper analyzes such outside conditionality theoretically and empirically. First, modelling the SBC problem as a war of attrition between the applicant countries' governments and firms we find that outside conditionality can foster SBC hardening. Yet, toughening the EU stance or reducing the number of enlargement rounds may have ambiguous effects. Second, estimating SBC hardening in a partial adjustment model by measuring the reaction of employment to output changes we find that EU conditionality did indeed help candidates to fight SBCs.

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“…The conditions that are most conducive to the restructuring of industrial enterprises (difficult as this is) are effective competition in the product market, effective mechanisms of corporate control and the imposition of hard budget constraints (see, for example, Carlin, Fries, Schaffer and Seabright (2001)). But these are even less likely to obtain in the case of banks than of most ordinary firms.…”

Section: Introductionmentioning

confidence: 99%

Bank Performance in Transition Economies

2003

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This paper examines the performance of 515 banks in 16 transition economies for the years 1994 -99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multiproduct firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achieving overall negative returns on equity. By contrast, when substantial reforms have not been undertaken, banks have been sustaining high negative returns on loans, largely at the expense of depositors; in effect they have been able to appropriate much of the tax that inflation levies on nominal deposits, and have been using this revenue to prop up their weak loan portfolios. Overall interest margins are declining over time but are substantially higher in low reform environments. The results indicate that an appropriate policy and regulatory framework may be a necessary condition for significant progress to be made. AbstractThis paper examines the performance of 515 banks in 16 transition economies for the years 1994 -99 based on their public financial accounts. We first examine lending behaviour and probability distribution of bank profitability to determine whether these banks exhibit behaviour and performance associated with excessive risk-taking. While we do not find evidence of excessive risk taking on average where there is significant progress in banking and related enterprise reforms, there may be a minority of poorly capitalised banks that do take excessive risks, particularly where progress in reform is less advanced. The paper then estimates cost and revenue functions based on a model of banks as multi-product firms. The results indicate that banks' performance differs significantly depending on the reform environment, as well as the competitive conditions, in which they operate. Banks with high market shares have higher costs and achieve lower margins on their loan and deposit activities. Where there has been significant progress in banking and related enterprise reforms, banks are making comfortable margins on loans and appear to be offering competitive margins on deposits, though they are still achievi...

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Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey

Cited by 100 publications

References 34 publications

Negative Investment in China: Financing Constraints and Restructuring Versus Growth

Negative Investment in China: Financing Constraints and Restructuring Versus Growth

Can EU conditionality remedy soft budget constraints in transition countries?

Bank Performance in Transition Economies

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