Lubomir Lizal

Investment, Credit Rationing, and the Soft Budget Constraint: Evidence from Czech Panel Data

Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing bank loans to firms and the high rate of investment of large state owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit-maximization.

Enterprise Breakups and Performance During the Transition from Plan to Market

Using firm-level data, we estimate the effects of the major wave of 1991 breakups of Czechoslovak state-owned enterprises on the subsequent performance of the master enterprises and spun-off divisions. We estimate the performance effects of spinoffs by comparing the performance of enterprises that remained intact throughout the 19901992 period to the performance of the master enterprises that experienced spinoffs and the newly spun-off subsidiaries. Our estimates suggest that the breakups had a significant immediate effect on the productive efficiency and on the profitability of industrial firms in 1991, and that the effect became much less significant in 1992. The effect is a negative function of the size of the spinoff, being positive for small to slightly above average-sized spinoffs and negative for very large ones. We cannot reject the hypothesis that the estimated effect was identical for the spun-off subsidiaries and the master enterprises that experienced the spinoffs. Our 1991 estimates suggest that the large firms created under the centrally planned system suffered from inefficiencies that were alleviated by the breakups. The 1992 estimates are consistent with increased competition and the appropriation of profits by managers.

State of corruption in transition: case of the Czech Republic

Corruption has a negative impact on society and economy. The transition process in Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption and necessity for appropriate steps to be taken. We document the state of corruption in the Czech Republic and the measures introduced to fight it. We cover sectors of society and economy according to their importance of a consequential corruption hazard. We also described the governments program of anticorruption and its achievements and failures. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as the transition process advances. Numerous comparative studies, however, suggest that corruption is a more prominent feature in a number of other transition countries. We believe that the substantial change of approach to the institutional framework is necessary in order to prevent and fight corruption successfully.

Determinants of Financial Distress: What Drives Bankruptcy in a Transition Economy? The Czech Republic Case

The main factors influencing the probability of bankruptcy are analyzed on Czech Republic 1993-1999 firm data. Basic models of the bankruptcy are compared: neoclassical, financial and corporate governance. The corporate governance hypothesis does not receive support in the ownership but the indicator of voucher privatization supports it. The initial conditions from early 90?s were not the driving the financial distress. The voucher-scheme privatization results in poorer corporate governance. These firms are more likely to go bankrupt, ceteris paribus. On the other hand, former large SOEs are less likely to bankrupt than firms with a similar debt structure - this is an evidence of soft budget constraints.

Corruption and Anticorruption in the Czech Republic

It is widely acknowledged that corruption has negative impact on economy and society. Transition process in the Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption that consequently required appropriate steps to be taken against. We attempted to document the state of corruption in the Czech Republic and the measures introduced to fight it. We covered sectors of society and economy according to their importance in the prevention of a corruption and a consequential hazard to the society. We also described the governmental concept of anti-corruption measures and outlined achievements and failures of such a program. The overall impression favors persistent presence of corruption within the society and economy in the Czech Republic. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as transition process advances. Numerous comparative studies, however, suggest that corruption is more prominent feature in a number of other transition countries. We believe that the institutional framework to prevent and fight corruption appears to be improving.

Financial Conditions and Investment during the Transition: Evidence from Czech Firms

In this paper, we examine net investment during the early stages of transition using micro data on the population of medium and large industrial firms in the Czech Republic during the 1992-95 period. We examine the relevance of alternative models of investment and test if investment behavior varies across categories of ownership and with the legal status of firms. Our analysis of depreciation leads us to the conclusion that replacement investment displays a similar pattern in many ownership-legal form categories of firms. Retained profit is found to be a major determinant of new investment and the estimate is statistically significant even when we use the most robust fixed effects estimates based on one-year differences. We find that enterprise profitability has a strong positive effect on investment in all types of firms except for privately owned-limited liability companies and foreign owned and mixed ownership firms. These results are consistent with the financing-hierarchy and credit-rationing hypotheses which indicate that domestic firms cannot easily borrow investment funds externally and that net investment varies with retained profits. Firms take into account various stock measures of internal finance. In particular, a stock of cash, receivables, receivables overdue, payables, and payables overdue systematically affect net investment.

The Paradox Of Czech Crusaders: Will They Ever Learn The Corruption Lesson? (Corruption And Anticorruption In The Czech Republic)

Corruption has a negative impact on society and economy. The transition process in Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption and necessity for appropriate steps to be taken. We document the state of corruption in the Czech Republic and the measures introduced to fight it. We cover sectors of society and economy according to their importance of a consequential corruption hazard. We also described the governments program of anticorruption and its achievements and failures. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as the transition process advances. Numerous comparative studies, however, suggest that corruption is more prominent feature in a number of other transition countries. We believe that the substantial change of approach to the institutional framework is necessary in order to prevent and fight corruption successfully.

Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence from a Transition Economy

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.

Pollution reductions in the Czech Republic

During the 1990s air pollutant emissions declined dramatically in many of the transition economies in Central and Eastern Europe including the Czech Republic. Various reasons may explain these reductions, such as (1) a decline in production, (2) the exit of older, more polluting firms, along with the entry of new, less polluting firms, (3) more stringent environmental policies etc. To assess these reasons, this study analyses firm-level air pollutant emissions from a panel of Czech firms over the years 1993–98. By controlling for the level of production, this study eliminates the potentially confounding factor of reduced economic activity over this transition period. By tracking a fixed set of firms over time, one part of this study controls for the exit of older firms and the entry of new firms. Based on an assessment of the analytical results and an examination of reasons for the reduction in air pollutant emissions, we conclude that tighter environmental protection policies proved the most important reason behind the dramatic reduction in Czech air pollutant emissions.

Enterprise Breakups and Performance During the Transition

This paper estimates the effects of the 1991 breakups of Czechoslovak state-owned enterprises (SOEs) on subsequent performance of the master enterprises and the spin-off units. The analysis is based on quarterly and annual data of Czechoslovak industrial enterprises. We estimate the performance effect of a spin-off by comparing the performance of enterprises that were present throughout the 1990–92 period, but did not experience any spin-offs, to that of: a) master enterprises that experienced spin-offs; and b) the new spin-off subsiduaries. The estimates suggest that the breakups had a significant immediate (1991) effect on productive efficiency and profitability of industrial firms. The effect was positive for small to slightly above-average size spin-offs and negative for large ones. The hypothesis that the estimated effect of spin-offs on performance was identical for the spin-off subsiduaries and the master enterprises that experienced the spin-offs cannot be rejected. The 1991 estimates thus strongly suggest that the large firms created under the centrally-planned system suffered from inefficiencies that were alleviated by the break-ups of these firms into smaller units.