P34 - Socialist Institutions and Their Transitions: Financial EconomicsReturn

This paper investigates the short and long-run relationship between credit risk and two bank profitability indicators ROA and ROE in Central and Eastern European countries during the period from 2000 to 2010. Results from previous research mostly confirm the negative relationship between profitability and credit risk by considering the current or one year lagged value of profitability. Certain crisis indicates that more profitable banks before the crisis became more risky during the time of crisis. These results motivate us to upgrade the model of credit risk by including earlier values of profitability. Results indicate that two or three years are necessary for growth of profitability to increase credit risk. However, the long-run relationship between foreign banks' profitability and credit risk is positive, for both indicators. For the domestic bank, the long-run effect of ROA on credit risk is positive, while for ROE this relationship is negative.

This research investigates the emergence of stock market in the Czech Republic. We use Czech mass privatization as an experiment that allows us to analyze under what conditions a viable stock market arises. On the Prague Stock Exchange (PSE), unlike its counterparts in Poland or Hungary, exceptionally large amounts of shares were delisted e.g. excluded from public trading soon after trading at this market began in 1993. We estimate the determinants of shares delisting analyzing the period 1993-2004. Using firm-level data on listed and delisted companies we show that it was possible to prevent massive delisting if certain pre-privatization and privatization characteristics of the companies had been taken into account when deciding which companies to place on the stock exchange for public trading following the mass privatization. This result has important implications for establishing stock markets in emerging economies.

This paper deals with government interventions in agricultural credit markets in the Czech Republic. I first describe the institutional setting and the empirics of agricultural credit in the Czech Republic. I explain the activities of the Czech Agricultural Guarantee Fund and compare it with similar institutions dealing with the support of agricultural credit in transition and developed market economies. Then I introduce an adverse selection model of credit provision with proportional credit guarantees. The model distinguishes two market regimes - a developed post-transition market economy and a transition economy. This distinction between transition and post-transition economies leads to different results generated by credit markets. Most notably, there is a failure of collateral as a screening instrument in credit markets of transition economies. With economic stabilization collateral resumes its role as a screening instrument.