Corporate governance and investment in Central and Eastern Europe

This article has three major goals: (i) to measure the returns on investment across Central and Eastern Europe (CEE) and compare them with companies in EU-15 countries; (ii) to study under- and overinvestment in CEE focusing on cash flow-investment sensitivity; and (iii) to compare ownership structure in CEE and EU-15 countries and measure investment performance by ownership group. We find support for the asymmetric information and managerial discretion hypotheses as explanations of under- and overinvestment. We also test for the presence of "soft budget constraints" in CEE, but conclude that these have hardened by the 1999-2003 period upon which our study focuses. Journal of Comparative Economics 35 (2) (2007) 414-437. University of Vienna, BWZ-Bruenner Str. 72, A-1210 Vienna, Austria. (c) 2007 Association for Comparative Economic Studies. Published by Elsevier Inc. All rights reserved.