Analysis of the Soft Budget Constraints in Iranian State-Owned Enterprises

Soft budget constraints (SBC), which were introduced into economic literature in the 1980s, act as a suitable framework within which the financial conditions of government units can be analyzed; this includes the central government, the local government, and state-owned enterprises. In this article, the different channels of SBC, which exist in Iranian state-owned enterprises, have been identified and the amount of credit allocated to each channel has been analyzed. Evidence shows that, the privilege given to state-owned enterprises in their exploitation of natural resources, especially oil, gas and other such resources, bank loans and other government loans, are among the factors and funding that cause SBC restrictions in these enterprises.A model with a budget data from 382 enterprises was constructed, the results obtained from this model confirm the important role of these funds in financing these enterprises. Also, another model was made to examine the impact of these funds on the profitability of state-owned companies. The results showed that when soft financial funds are increased, the profit made by these enterprises decrease resulting in rent seeking activities in state-owned companies. As a result, widespread financial indiscipline is created, which has damaged the efficiency in these enterprises, reduced financial transparency in them and provided opportunities for economic corruption. They have also caused the stakeholders of these enterprises to lose interest in implementing steps to improve productivity. Thus the results suggest, a plan is required to harden the budget constraints of these enterprises and to reform the processes of government relations. Furthermore, an improvement in the transparency of financial transactions and personnel affairs should be pursued in parallel with the privatization these enterprises.