Capital Investment and Determinants of Financial Constraints in Estonia

Bersant Hobdari, Derek C. Jones, Niels Mygind

    Research output: Contribution to journalJournal articleResearchpeer-review


    Unlike previous empirical work concerning investment behavior and the determinants of liquidity constraints, we use a switching regression framework when sample separation is unknown and endogenous and firms are assumed to operate either in the financially constrained or in the financially unconstrained regime. By using new panel data for Estonian companies during 1993–2002 we find that: (i) investment behavior is characterized by two distinct regimes; (ii) the likelihood of being financially constrained is higher in firms that are recently privatized, small and where ownership is concentrated in the hands of insiders and the state; (iii) the actual probabilities of operating in the financially constrained regime are quite high and essentially stable during the whole period under consideration; (iv) ownership structure affects investment beyond its indirect effects through financial constraints.
    Original languageEnglish
    JournalEconomic Systems
    Issue number4
    Pages (from-to)344-359
    Number of pages16
    Publication statusPublished - 2009

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