Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises

The paper analyzes investment behavior of industrial enterprises in the period immediately following price and foreign trade liberalization in the Czech Republic. It also focuses on the effect of Asoft@ macroeconomic environment on the microeconomic decisions. A dynamic investment function with symmetric adjustment cost function based on the Euler equation has been estimated. The derived and estimated investment function accounts for export sales in order to determine whether firms evaluate production for domestic and foreign markets differently, i.e, use the advantage of an undervalued currency. The estimation was conducted on two-year firm-level panel data from 1992 and 1993. The first major result of the empirical analysis suggests that there is no evidence that firms treat domestic sales and exports differently in the context of the adjustment cost function. The second remarkable finding contradicts the common view that firms in the transitional environment have short-term horizons. Both these findings could be interpreted as strong evidence against the idea of economic policy helping firms within a temporary soft macroeconomic environment. No evidence was found against the applicability of the constant returns to scale assumption on the Cobb-Douglas production function within the analyzed framework.

Does a Soft Macroeconomic Environment Induce Restructuring on the Microeconomic Level during the Transition Period? Evidence from Investment Behavior of Czech Enterprises

The paper analyzes investment behavior of industrial enterprises in the period immediately following price and foreign trade liberalization in the Czech Republic. It also focuses on the effect of Asoft@ macroeconomic environment on the microeconomic decisions. A dynamic investment function with symmetric adjustment cost function based on the Euler equation has been estimated. The derived and estimated investment function accounts for export sales in order to determine whether firms evaluate production for domestic and foreign markets differently, i.e, use the advantage of an undervalued currency. The estimation was conducted on two-year firm-level panel data from 1992 and 1993. The first major result of the empirical analysis suggests that there is no evidence that firms treat domestic sales and exports differently in the context of the adjustment cost function. The second remarkable finding contradicts the common view that firms in the transitional environment have short-term horizons. Both these findings could be interpreted as strong evidence against the idea of economic policy helping firms within a temporary soft macroeconomic environment. No evidence was found against the applicability of the constant returns to scale assumption on the Cobb-Douglas production function within the analyzed framework.Investment, Enterprises, Adjustment cost, Transition, Production function

Investment, Credit Rationing and the Soft Budget Constraint: Evidence from Czech Panel Data

Strategic restructuring of firms through investment is key to a transition from plan to market. Using data on industrial firms in the Czech Republic during 1992-98, we find that (a) foreign owned companies invest the most and cooperatives the least, (b) private firms do not invest more than state-owned ones and (c) cooperatives and small firms are credit rationed. Given the large volume of non-performing bank loans to firms and the high rate of investment of large state owned and private firms, our findings also suggest that these firms operate under a soft budget constraint. Estimates of a dynamic model, together with the support for the neoclassical model, suggest that firms started to behave consistently with profit-maximization.http://deepblue.lib.umich.edu/bitstream/2027.42/39747/3/wp363.pd

Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.http://deepblue.lib.umich.edu/bitstream/2027.42/57236/1/wp856 .pd

Corruption and Anticorruption in the Czech Republic

It is widely acknowledged that corruption has negative impact on economy and society. Transition process in the Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption that consequently required appropriate steps to be taken against. We attempted to document the state of corruption in the Czech Republic and the measures introduced to fight it. We covered sectors of society and economy according to their importance in the prevention of a corruption and a consequential hazard to the society. We also described the governmental concept of anti-corruption measures and outlined achievements and failures of such a program. The overall impression favors persistent presence of corruption within the society and economy in the Czech Republic. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as transition process advances. Numerous comparative studies, however, suggest that corruption is more prominent feature in a number of other transition countries. We believe that the institutional framework to prevent and fight corruption appears to be improving.http://deepblue.lib.umich.edu/bitstream/2027.42/39729/3/wp345.pd

Effects of Ownership and Financial Status on Corporate Environmental Performance

This paper analyzes the effects of ownership structure on corporate environmental performance and examines the link between financial performance to environmental performance in a transition economy. In particular, it analyzes these ownership effects and this performance link using an unbalanced panel of Czech firms for the years 1993 to 1998. It considers state ownership and various types of private ownership, while contrasting concentrated and diffuse forms of private ownership. Additionally, it examines whether or not successful financial performance begets or undermines good environmental performance.Czech Republic; environmental protection; pollution; ownership; financial status

Does Better Environmental Performance Affect Revenues, Cost, or Both? Evidence From a Transition Economy

This study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects revenues, costs, or both, and if so, in which directions. As environmental performance improves, do revenues rise and costs fall so that profits unambiguously increase? Or vice versa? If both revenues and costs rise (or fall), does better environmental performance improve or undermine profitability? To answer these questions, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The analytical results indicate strongly that better environmental performance improves profitability by driving down costs more than it drives down revenues, consistent with the substantial regulatory scrutiny exerted by environmental agencies and the primary pollution control approach implemented by firms during the sample period.Czech Republic, environmental protection, pollution, financial performance

The Effect of Corporate Environmental Performance on Financial Outcomes – Profits, Revenues and Costs: Evidence from the Czech Transition Economy

This empirical study analyzes the effect of corporate environmental performance on financial performance in a transition economy. In particular, it assesses whether good environmental performance affects profits, and if so, in which direction. Then the study decomposes profits into revenues and costs in order to identify the channel(s) of any identified effect of environmental performance on profits. For example, as environmental performance improves, do revenues rise and costs fall so that profits increase? For this assessment, our study analyzes the links from environmental performance to revenues, costs, and profits using an unbalanced panel of Czech firms from the years 1996 to 1998. The empirical results indicate strongly and robustly that better environmental performance improves profitability by driving down costs more than it drives down revenues. The strong reduction in costs is consistent with the substantial regulatory scrutiny exerted by environmental agencies during the sample period in the forms of prevalent monitoring (i.e., inspections) and enforcement and escalating emission charge rates.Czech Republic, environmental protection, pollution, financial performance

The Impact of Capital Measurement Error Correction on Firm-Level Production Function Estimation

Based on a large panel of Czech manufacturing firms, we estimate firm-level production functions in 2003-2007 using the Levinsohn and Petrin (2003) and Wooldridge (2009) approaches, correcting for the measurement error in capital. We show that measurement error plays a significant role in the size of the estimated capital coefficient. The capital coefficient estimate approximately doubles (depending on the particular industry) when we control for capital measurement error. Consequently, while the majority of industries exhibit constant or (in)significantly decreasing returns to scale when the standard methods are used, increasing returns cannot be rejected in some industries when the estimation is corrected for capital measurement error.Capital, firm-level data, measurement error.

The Paradox of Czech Crusaders: Will They Ever Learn the Corruption Lesson? (Corruption and Anticorruption in the Czech Republic)

Corruption has a negative impact on society and economy. The transition process in Central and Eastern Europe (CEE) uncovered dormant possibilities for corruption and necessity for appropriate steps to be taken. We document the state of corruption in the Czech Republic and the measures introduced to fight it. We cover sectors of society and economy according to their importance of a consequential corruption hazard. We also described the government's program of anticorruption and its achievements and failures. The state of corruption in the country, measured by the Corruption Perception Index, presents a serious problem since the index does not improve as the transition process advances. Numerous comparative studies, however, suggest that corruption is more prominent feature in a number of other transition countries. We believe that the substantial change of approach to the institutional framework is necessary in order to prevent and fight corruption successfully.corruption, institutions, transition, hidden economy, state administration