Abstract
This article has three major goals: (i) to measure the returns on investment across Central and Eastern Europe (CEE) and compare them with companies in EU-15 countries; (ii) to study under- and overinvestment in CEE focusing on cash flow-investment sensitivity; and (iii) to compare ownership structure in CEE and EU-15 countries and measure investment performance by ownership group. We find support for the asymmetric information and managerial discretion hypotheses as explanations of under- and overinvestment. We also test for the presence of “soft budget constraints” in CEE, but conclude that these have hardened by the 1999–2003 period upon which our study focuses. Journal of Comparative Economics 35 (2) (2007) 414–437.
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