Abstract
Financial market imperfections constrain firms’ ability to obtain funds. This is especially true for the former communist bloc countries. However, the restrictions on access to financing and the attitudes of management in these geographies remain overlooked by academic research and represent an important obstacle on the roadmap to sustainable development. The objective of this paper is to fill this gap by analyzing the impact of ownership structure, institutional environment development, and debt market profile on the perception of financial constraints by the representatives of corporate top management from 28 countries of the former communist bloc. Our analysis spans over the period 2002–2013. We apply the probit and Heckman models to investigate nonlinear and multicast effects of the considered factors. We evidence that during the crisis and post-crisis periods, foreign ownership alleviates the restrictions on access to financial resources. We also discuss the role of state ownership. We find that the volume of local currency bond market has a nonlinear U-shape relationship. Our results are useful for policy makers focused on sustainable development of the former communist economies by means of improving access of businesses to financing.
Highlights
A policy of transition to market economy and to sustainable development was conducted within the former communist bloc
Financial constraints have been duly addressed in the academic literature as an important barrier for sustainable development
Financial constraints experienced by businesses in these geographies represent an important obstacle on the roadmap to sustainable economic development
Summary
A policy of transition to market economy and to sustainable development was conducted within the former communist bloc. Belarus, and a range of Asian countries carried out a restrictive policy of foreign capital cash flow in order to maintain the government control over the largest enterprises. The key feature of the countries in the sample under our consideration is the incompleteness of the transit process from a centrally planned to market economy. Sovereign democracy is a very fragile structure that can turn into a collapse for many companies when a totalitarian leader changes. Such highly probable events can further increase barriers to financial resources, both at the state level (sanctions) and at the firm level. The move towards sustainable development could be set back many years
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