Working Paper: CEPR ID: DP2488
Authors: Ariane Lambert-Mogiliansky; Constantin Sonin; Ekaterina Zhuravskaya
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.
Keywords: bankruptcy; capture; incentives; regional governments; restructuring; Russia; transition
JEL Codes: D23; G33; H11; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| capture of arbitrage courts by regional governors (K41) | inefficiencies in the bankruptcy process in Russia (G33) |
| strong regional governors (H10) | prevent restructuring even if the manager prefers it (D20) |
| weak regional governors (R50) | manager can manipulate the bankruptcy process to avoid liquidation (G33) |
| regional political dynamics (R50) | probability of bankruptcy procedures (G33) |
| larger firms in profitable industries (L25) | more likely to avoid liquidation due to political capture (G33) |