Abstract

This survey paper examines existing theories of capital structure and
related empirical tests with the aim to derive theoretical as well empirically
testable predictions about the implications of the soft budget constraint for
corporate capital structure. We show that the soft budget constraint syndrome is
relevant for a variety of institutional environments, from central planning to capitalist
economic systems, and consider features of company financing patterns in
various institutional contexts. Special attention is paid to emerging and transition
economies where, with the development of financial markets, companies reduce
their financial dependence on the state and begin to borrow from a variety of
sources. However, due to the persistence of soft budget constraints, corporate capital
structure in transition and emerging economies may still deviate significantly
from the capital structure of companies operating under hard budget constraints.