Corporate finance in the Central and Eastern Europe was, in general, characterised by soft budget constraints (SBCs), often leading to the inefficient allocation of resources. This paper empirically investigates the extent of the impact of SBCs on investment financing for large firms in six new...

Soft budget constraints (SBCs) can be said to exist in situations where governments rescue loss-making firms in order to guarantee their survival by means of either a direct or an indirect injection of credit. The credit markets of the former socialist economies of Central and Eastern Europe...