¹University of Vienna, BWZ-Bruenner str. 72, Vienna A-1210, Austria

Correspondence: Evgeni Peev, E-mail: evgeni.peev@univie.ac.at

Abstract

We estimate investment-cash flow models for a large sample of firms in 13 transition economies over the period 1993–2003, and find that (1) investment-cash flow sensitivities decline over transition years; (2) for state-owned firms, in early transition the investment-cash flow sensitivity is negative, which we interpret as being consistent with soft budget constraints; (3) privatised firms invest efficiently; and (4) foreign-controlled firms are less financially constrained than other firms.