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Capture of Bankruptcy: Theory and Evidence from Russia

Author

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  • Zhuravskaya, Ekaterina
  • Lambert-Mogiliansky, Ariane
  • Sonin, Konstantin

Abstract

Laws that work well in a rule-of-law country may produce unexpected outcomes in a corrupt environment. We argue that the legal system in Russia is faulted by the capture of regional divisions of arbitrage courts. We analyse the consequences of this for the efficiency of Russian bankruptcy law. Using a theoretical model and a systematic analysis of available evidence, we conclude the following: First, the governors in alliance with managers of large regional enterprises use bankruptcy institution as a mechanism for effective expropriation of the federal government and the outside investors. And second, the bankruptcy law does not create pressure on managers to restructure; instead, it may even prevent restructuring.

Suggested Citation

  • Zhuravskaya, Ekaterina & Lambert-Mogiliansky, Ariane & Sonin, Konstantin, 2000. "Capture of Bankruptcy: Theory and Evidence from Russia," CEPR Discussion Papers 2488, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:2488
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    References listed on IDEAS

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    1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 215-244, National Bureau of Economic Research, Inc.
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    5. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
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    Citations

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    Cited by:

    1. Catherine Locatelli & Dominique Finon, 2003. "Les limites à l'introduction des institutions de marché dans un secteur de rente," Post-Print halshs-00177824, HAL.
    2. Mathilde Mesnard, 2001. "L'insuffisance de l'explication légale pour rendre compte des difficultés de la transition russe en matière de « corporate governance »," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 519-542.
    3. Bruno Biais & Thomas Mariotti, 2009. "Credit, Wages, and Bankruptcy Laws," Journal of the European Economic Association, MIT Press, vol. 7(5), pages 939-973, September.
    4. Guido Friebel & Sergei Guriev, 2000. "Should I Stay or Can I Go? Worker Attachment in Russia," Working Papers w0008, Center for Economic and Financial Research (CEFIR).
    5. Guriev, Sergei & Makarov, Igor & Maurel, Mathilde, 2002. "Debt Overhang and Barter in Russia," Journal of Comparative Economics, Elsevier, vol. 30(4), pages 635-656, December.
    6. Irina Slinko & Ekaterina Zhuravskaya & Evgeny Yakovlev, 2005. "Laws for Sale: Evidence from Russia," American Law and Economics Review, American Law and Economics Association, vol. 7(1), pages 284-318.
    7. Kolecek, Ludek, 2008. "Bankruptcy laws and debt renegotiation," Journal of Financial Stability, Elsevier, vol. 4(1), pages 40-61, April.
    8. Sergei Guriev & Barry W. Ickes, 2000. "Microeconomic Aspects of Economic Growth in Eastern Europe and the Former Soviet Union, 1950-2000," William Davidson Institute Working Papers Series 348, William Davidson Institute at the University of Michigan.
    9. Gennaioli, Nicola & Rossi, Stefano, 2008. "Optimal Resolutions of Financial Distress by Contract," CEI Working Paper Series 2008-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    10. Ondøej Knot & Ondøej Vychodil, 2005. "What Drives the Optimal Bankruptcy Law Design? (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 55(3-4), pages 110-123, March.
    11. Mathilde Mesnard, 2001. "Why the Legal Argument Falls Short of Explaining the Corporate Governance Problems in the Russian Transition," Revue d'Économie Financière, Programme National Persée, vol. 6(1), pages 477-497.
    12. Irina Denisova & Stanislav Kolenikov & Ksenia Yudaeva, 2000. "Child Benefits and Child Poverty," Working Papers w0006, Center for Economic and Financial Research (CEFIR).
    13. Scott Gehlbach, 2003. "Taxability, Elections, and Government Support of Business Activity," Working Papers w0030, New Economic School (NES).
    14. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2008. "Debt Enforcement around the World," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1105-1149, December.
    15. Ichiro Iwasaki, 2007. "Enterprise Reform And Corporate Governance In Russia: A Quantitative Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 21(5), pages 849-902, December.
    16. Scott Gehlbach, 2003. "Taxability, Elections, and Government Support of Business Activity," Working Papers w0030, Center for Economic and Financial Research (CEFIR).
    17. Zakolyukina Anastasia, 2006. "Bankrtuptcy in Russia: External Management Performance," EERC Working Paper Series 06-09e, EERC Research Network, Russia and CIS.
    18. Zhuravskaya, Ekaterina & Slinko, Irina & Yakovlev, Evgeny, 2003. "Institutional Subversion: Evidence from Russian Regions," CEPR Discussion Papers 4024, C.E.P.R. Discussion Papers.
    19. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
    20. Desai, Raj M. & Olofsgard, Anders, 2006. "The political advantage of soft budget constraints," European Journal of Political Economy, Elsevier, vol. 22(2), pages 370-387, June.
    21. Scott Gehlbach, 2003. "Taxability and Low-Productivity Traps," Working Papers w0029, Center for Economic and Financial Research (CEFIR).
    22. Roger Myerson & Serguey Braguinsky, 2005. "Oligarchic Property Rights and Investment," 2005 Meeting Papers 49, Society for Economic Dynamics.
    23. Catherine Locatelli & Dominique Finon, 2004. "The failure of introducing market institutions in a rent sector into an economy in transition," Post-Print halshs-00001302, HAL.
    24. Ondøej Knot & Ondøej Vychodil, 2006. "Czech Bankruptcy Procedures: Ex-post Efficiency View," Working Papers IES 2006/03, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jan 2006.

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    More about this item

    Keywords

    Bankruptcy; Incentives; Transition; Restructuring; Russia; Capture; Regional governments;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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