Causes of the soft budget constraint: evidence on three explanations

Article Abstract:

Analysis of soft budget constraint (SBC) causes reveals that political influence, creditor's lack of commitment and information and insider control do cause SBC. The study takes into account China's experience using data from the enterprise reform period. The study finds that employment of nonproduction workers, investment with below average rate of return and distribution of excessive bonuses have all contributed to financial losses and that there is no evidence that these factors decrease to correct financial losses.

China

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Do firms in transition economies have soft budget constraints? A reconsideration of concepts and evidence

Article Abstract:

Analysis of transition economy firm characteristics with regards soft budget constraints reveals that tax arrears are the main route by which the budget constraints of firms are softened. Overdue trade credit, or interenterprise arrears, are not typical causes of budget constraint softness but exceptions have been made in cases where governments instead of firms are the source of softness.

Analysis, Budget, Budgeting, Budgets

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