Ownership Changes and Investment in Transition Countries

We estimate accelerator-cash flow models for 25,000 firms in 15 transition economies over the period 1993-2003, and find that (1) investment-cash flow sensitivities decline over transition years, which we attribute to a decreasing of asymmetric information and managerial discretion as capital markets and corporate governance standards develop. (2) After an ownership change, the investment-cash flow sensitivity declines, indicating that new owners reduce either cash constraints or managerial discretion or both. (3) For state owned firms, in early transition the investment-cash-flow sensitivity is negative, but in late transition the coefficient becomes positive. We interpret the first fact as being consistent with soft budget constraints, and the second with managerial discretion. (4) Privatised firms invest efficiently in the long run. (5) Foreign- and financially-controlled firms are less financially constrained than other firms.