Presents the results of an empirical investigation of the behaviour of Hungarian firms during the transition process focusing in particular on the role of financial market imperfections for corporate capital structure and investment decisions

We develop a general equilibrium model of banks' capital structure, featuring heterogeneous portfolio risk and an imperfectly elastic supply of bank equity stemming from financial market segmentation. In our model, equity is costly and serves as a buffer against insolvency. Banks are ex-ante...