On the Role of Banks in Enterprise Restructuring

The paper provides a framework for understanding why in Romania, like in any other Central and Eastern European country, before starting the process of enterprise restructuring, it is necessary to reform the financial sector. It also provides statistical evidence for understanding why the reform of the financial system could accelerate the process of enterprise restructuring. The data collected from 256 state-owned enterprises relate the real bank borrowing to the profits of the enterprises, the real stock of inter-enterprise arrears and the size of the enterprises. For studying whether good or bad SOEs receive in a different way bank loans, the determinants of state firms borrowing in Romania are analyzed for each of the three years the analysis is concerned, testing the hypothesis that the market-oriented reform of the banking system in Romania generated a better allocation of bank credit to state-owned enterprises. The current sample of 256 SOEs will be then split into subsamples, on the basis of the profit margin per employee in each enterprise. The regression run for the data related to bank borrowing in the enterprises which are part of these subsamples will try to answer the question whether banks take into consideration the profitability of enterprises in their decision to allocate credit. The regressions will be run for each year and some conclusions will be inferred from the differences in the values and in the significance of the coefficients associated with the variables in the regression. Considered to be important in the allocation of bank credit are the bank arrears, inter-enterprise arrears and the size of enterprises. At the end of this paper some policy tools will be suggested for improving the allocation of bank borrowing to state firms.Restructuring, Financial Restructuring, Bank Lending in Transition

Why Do Commercial Firms Open The Source Code Of Their Products?

This paper is concerned with the economic trade-offs associated with open-sourcing, the business strategy of releasing the source code of a commercial software product. We model open-sourcing as a strategic option for firms that compete in the market for software products. At the core of our model is the effect of open-sourcing on customer values, as well as the relative ease of customizing the open-source products. We show that open-sourcing can arise as an equilibrium outcome in our two-stage game. If the enhancement of customer value from open-sourcing is moderate or high, in equilibrium firms may find it optimal to release the source code of their commercial software products even when this strategy may reduce their profits

The Evolution of Bank Credit Qulity in Transition: Theory and Evidence from Romania

The paper develops a simple theoretical framework of financial discipline during the stabilization of a transition economy, from which it derives an empirical measure to assess whether the banking sector has started to act as a source of financial discipline, or just as a temporary buffer for enterprise losses. The model suggests that in the presence of active bank monitoring the correlation between bank lending and arrears should be decreasing over time, while it would increase if banks rolled over bad loans in the expectation of a bailout. We run the test on balance sheet data from a sample of Romanian state-owned enterprises over 1991-1994. We find evidence that, contrary to the findings of Pinto and van Wijnbergen for Poland, credit criteria used by Romanian banks show few signs of improvement. Most worrisome is the stability of the relation between bank credit and financial arrears, which seems to increase in strength over the period and remains very significant both statistically and in terms of economic impact. Bank credit appears negatively correlated with profitability; however, there is evidence that this is the result of better firms reducing their demand for credit as real rates rise. Reassuringly, credit to these firms depend positively on their receivables, while bank arrears have a insignificant impact. However, firm size was a significant determinant till 1993 and trade arrears become a strong determinant of credit in 1994. Banks appear to particularly soft towards the worse performing firms, particularly towards larger and more insolvent enterprises. There is evidence of a structural policy shift in 1993-1994 with banks refinancing trade arrears, perhaps following IMF pressure against further central bank bailouts of such arrears. Overall, the evidence suggests a largely passive attitude of banks towards the worse borrowers and only limited reallocation of credit to better users.

Can Governments Mandate Hard Budget Constraints? Bank Lending and Financial Isolation in Romania

This paper examines the empirical evidence on the impact of reforms in the financial sector in Romania in the period 1993-1995. The methodological framework of the paper is based on a theoretical model of intertemporal bank lending in a transition country with uncertain prospects for stabilization (Carare and Perotti, 1997). The model identifies an empirical test to measure whether the banking sector has started to act as a source of financial discipline, or just as a temporary buffer for enterprise losses. The idea is to test whether the correlation between bank lending and arrears is decreasing over time. We also seek to assess the structure and impact of the program of financial isolation initiated by the government in 1994 to impose tighter budget constraints on a set of insolvent state-owned firms. We use both a logit specification and a structural test to analyze the determinants of the selection of firm included in the program. Our results indicate that after the early stage of collective bailouts ended in early 1993, banks at first acted as channel to support insolvent firms. The evidence suggests also that by 1995, when the financial isolation program started, financial policies became more discriminative. While the criteria for the overall credit allocation appear to have improved, there are signs that support was shifted to a selected group of enterprises, perhaps in part through the program itself. However, only once more recent data becomes available it would be possible to investigate whether there has been a change in the initial discipline imposed on the financially isolated firms as a result of the program.http://deepblue.lib.umich.edu/bitstream/2027.42/39627/3/wp241.pd

Can Governments Mandate Hard Budget Constraints? Bank Lending and Financial Isolation in Romania

This paper examines the empirical evidence on the impact of reforms in the financial sector in Romania in the period 1993-1995. The methodological framework of the paper is based on a theoretical model of intertemporal bank lending in a transition country with uncertain prospects for stabilization (Carare and Perotti, 1997). The model identifies an empirical test to measure whether the banking sector has started to act as a source of financial discipline, or just as a temporary buffer for enterprise losses. The idea is to test whether the correlation between bank lending and arrears is decreasing over time. We also seek to assess the structure and impact of the program of financial isolation initiated by the government in 1994 to impose tighter budget constraints on a set of insolvent state-owned firms. We use both a logit specification and a structural test to analyze the determinants of the selection of firm included in the program. Our results indicate that after the early stage of collective bailouts ended in early 1993, banks at first acted as channel to support insolvent firms. The evidence suggests also that by 1995, when the financial isolation program started, financial policies became more discriminative. While the criteria for the overall credit allocation appear to have improved, there are signs that support was shifted to a selected group of enterprises, perhaps in part through the program itself. However, only once more recent data becomes available it would be possible to investigate whether there has been a change in the initial discipline imposed on the financially isolated firms as a result of the program.restructuring, financial restructuring, bank lending in transition

Competition Between Auctions

Even though auctions are capturing an increasing share of commerce, they are typically treated in the theoretical economics literature as isolated. That is, an auction is typically treated as a single seller facing multiple buyers or as a single buyer facing multiple sellers. In this paper, we review the state of the art of competition between auctions. We consider three different types of competition: competition between auctions, competition between formats, and competition between auctioneers vying for auction traffic. We highlight the newest experimental, statistical and analytical methods in the analysis of competition between auctions

Competition Between Auctions

Even though auctions are capturing an increasing share of commerce, they are typically treated in the theoretical economics literature as isolated. That is, an auction is typically treated as a single seller facing multiple buyers or as a single buyer facing multiple sellers. In this paper, we review the state of the art of competition between auctions. We consider three different types of competition: competition between auctions, competition between formats, and competition between auctioneers vying for auction traffic. We highlight the newest experimental, statistical and analytical methods in the analysis of competition between auctions.auctions, bidding, competition, auction formats, auction houses

Economics, Psychology, and Social Dynamics of Consumer Bidding in Auctions

With increasing numbers of consumers in auction marketplaces, we highlight some recent approaches that bring additional economic, social, and psychological factors to bear on existing economic theory to better understand and explain consumers' behavior in auctions. We also highlight specific research streams that could contribute towards enriching existing economic models of bidding behavior in emerging market mechanisms.Peer Reviewedhttp://deepblue.lib.umich.edu/bitstream/2027.42/47034/1/11002_2005_Article_5901.pd

On the Role of Banks in Enterprise Restructuring

Abstract: The paper provides a framework for understanding why in Romania, like in any other Central and Eastern European country , before starting the process of enterprise restructuring, it is necessary to reform the financial sector. It also provides statistical evidence for understanding why the reform of the financial system could accelerate the process of enterprise restructuring. The data collected from 256 state-owned enterprises relate the real bank borrowing to the profits of the enterprises, the real stock of inter-enterprise arrears and the size of the enterprises. For studying whether good or bad SOEs receive in a different way bank loans, the determinants of state firms borrowing in Romania are analyzed for each of the three years the analysis is concerned, testing the hypothesis that the market-oriented reform of the banking system in Romania generated a better allocation of bank credit to state-owned enterprises. The current sample of 256 SOEs will be then split into subsamples, on the basis of the profit margin per employee in each enterprise. The regression run for the data related to bank borrowing in the enterprises which are part of these subsamples will try to answer the question whether banks take into consideration the profitability of enterprises in their decision to allocate credit. The regressions will be run for each year and some conclusions will be inferred from the differences in the values and in the significance of the coefficients associated with the variables in the regression. Considered to be important in the allocation of bank credit are the bank arrears, inter-enterprise arrears and the size of enterprises. At the end of this paper some policy tools will be suggested for improving the allocation of bank borrowing to state firms.