Empirical analysis of the financial fragility of Russian enterprises using the financial instability hypothesis

This paper conducts an empirical analysis of the financial instability hypothesis on Russian data. The main literature on this topic has been reviewed, and two financial fragility indexes—developed by Mulligan and by Torres Filho with coauthors—to determine whether Russian firms are in a hedge, speculative or Ponzi regime are used. To do empirical analysis, 371 Russian firms from nine industries—Agriculture, Construction, Investment, Light Industry, Power Industry, Machinery, Steel Industry, Trade, and also Oil, Gas, and Chemicals Industry—were selected, and these panel data include observations from 2005 to 2020. This period includes three cases of falling GDP in Russia: 2008–2009, 2014–2015, and 2020. After identifying the regime of firms according to the two above-mentioned criteria, we make a logistic regression on the base of the Nishi approach to determine what affects a firm’s probability of becoming a Ponzi unit. According to our analysis, the increase in GDP and Profitability leads to declining in the Russian firms’ probability to become Ponzi, whereas the rise in Short-term Debt results in the growing probability to have a fragile financing regime. In general, speculative financing dominated, and Construction, Investment, Power Industry, and Machinery were the most fragile sectors.