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Are Russian Commercial Courts Biased? Evidence from a Bankruptcy Law Transplant

Author

Listed:
  • Ariane Lambert-Mogiliansky

    (PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Konstantin Sonin

    (CEFIR - Center for Economic and Financial Research - CEFIR, CEPR - Center for Economic Policy Research - CEPR)

  • Ekaterina Zhuravskaya

    (CEFIR - Center for Economic and Financial Research - CEFIR, CEPR - Center for Economic Policy Research - CEPR)

Abstract

We study the nature of judicial bias in bankruptcy proceedings following the enactment of the 1998 bankruptcy law in Russia. The two main findings are as follows. First, regional political characteristics affected judicial decisions about the number and types of bankruptcy proceedings initiated after the law took effect. Controlling for indicators of firms' insolvency and the quality of the regional judiciary, reorganization procedures were significantly more frequent in regions with politically popular governors and governors who had hostile relations with the federal center. Poor judicial quality was also associated with higher incidence of reorganizations. Second, the quality of the regional judiciary affected performance of firms under the reorganization procedure: in regions with low quality judges, firms that were reorganized according to the 1998 law had significantly lower growth in sales, labor productivity, and product variety compared to firms not subject to bankruptcy proceedings. In contrast, in regions with high quality judges, firms in reorganization outperformed firms not in bankruptcy proceedings. This effect of judicial quality on the performance of reorganized firms was stronger when governors were politically popular. These findings are consistent with the view that politically strong governors subverted enforcement of the 1998 bankruptcy law. Journal of Comparative Economics35 (2) (2007) 254-277.

Suggested Citation

  • Ariane Lambert-Mogiliansky & Konstantin Sonin & Ekaterina Zhuravskaya, 2007. "Are Russian Commercial Courts Biased? Evidence from a Bankruptcy Law Transplant," PSE-Ecole d'économie de Paris (Postprint) halshs-00754226, HAL.
  • Handle: RePEc:hal:pseptp:halshs-00754226
    DOI: 10.1016/j.jce.2007.03.009
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    References listed on IDEAS

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    More about this item

    Keywords

    Judicial bias; Political economics; Federalism; State capture; Law transplant; Bankruptcy; Russia;
    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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