Publication detail

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

Author(s): PhDr. Jiří Schwarz Ph.D., Martin Pospíšil
Type: IES Working Papers
Year: 2014
Number: 12
Published in: IES Working Papers 12/2014
Publishing place: Prague
Keywords: bankruptcy, cash flow, credit rationing, financial constraints, investment, post-transition economy
JEL codes: D22, D92, E22, G32
Suggested Citation: Pospíšil M., Schwarz J. (2014). “Bankruptcy, Investment, and Financial Constraints: Evidence from a Post-Transition Economy” IES Working Paper 12/2014. IES FSV. Charles University.
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 posttransition
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.
Downloadable: WP_2014_12_Pospisil_Schwarz




Patria Finance