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Debt Overhang and Barter in Russia

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  • Sergei Guriev
  • Igor Makarov
  • Mathilde Maurel

Abstract

In this paper we study, both theoretically and empirically, the relationship between barter and the indebtedness of Russian firms. We build a model in which a firm uses barter to protect its working capital against outside creditors even when barter involves high transaction costs. The main innovation of our work is to allow renegotiation between the firm and its creditors. If the creditors are rational, they often agree to postpone debt payments in order to avoid destroying the firm's working capital. It turns out, however, that even if the firm cannot ensure it will not divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater the debt overhang, the more likely the use of barter, and although the possibility of debt restructuring reduces barter, it does not eliminate it altogether. We also discuss the role of the government bond market and weak bankruptcy legislation. The firm-level evidence is consistent with the model's predictions.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 339.

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Length: pages
Date of creation: 01 Sep 2000
Date of revision:
Handle: RePEc:wdi:papers:2000-339

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Keywords: barter; demonetisation; debt overhang; renegotiations;

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References

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  1. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, Elsevier, vol. 29(3), pages 253-268, November.
  2. Dalia Marin & Monika Schnitzer, 1999. "Disorganization and Financial Collapse," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 285, William Davidson Institute at the University of Michigan.
  3. Susan J. Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 152, William Davidson Institute at the University of Michigan.
  4. Brana, S. & Maurel, M., 1999. "Barter in Russia : Liquidity Shortage Versus Lack of Restructuring," Papiers d'Economie Mathématique et Applications, Université Panthéon-Sorbonne (Paris 1) 1999.98, Université Panthéon-Sorbonne (Paris 1).
  5. Guriev, Sergei & Kvassov, Dmitry, 2000. "Barter For Price Discrimination?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2449, C.E.P.R. Discussion Papers.
  6. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 113(3), pages 733-771, August.
  7. Berglof, Erik & Roland, Gerard, 1998. "Soft Budget Constraints and Banking in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 18-40, March.
  8. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," CID Working Papers, Center for International Development at Harvard University 49, Center for International Development at Harvard University.
  9. Wendy Carlin & Steven Fries & Mark Schaffer & Paul Seabright, 2000. "Barter and Non-Monetary Transactions in Transition Economies: Evidence from a Cross-Country Survey," CERT Discussion Papers, Centre for Economic Reform and Transformation, Heriot Watt University 0004, Centre for Economic Reform and Transformation, Heriot Watt University.
  10. Enrico C. Perotti & Octavian Carare, 1996. "The Evolution of Bank Credit Qulity in Transition: Theory and Evidence from Romania," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 49, William Davidson Institute at the University of Michigan.
  11. Earle, John S. & Peter, Klara Sabirianova, 2000. "Equilibrium Wage Arrears: A Theoretical and Empirical Analysis of Institutional Lock-In," IZA Discussion Papers 196, Institute for the Study of Labor (IZA).
  12. Clifford Gaddy & Barry W. Ickes, 1998. "To Restructure or Not to Restructure: Informal Activities and Enterprise Behavior in Transition," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan 134, William Davidson Institute at the University of Michigan.
  13. V. Makarov & G. Kleiner, 2000. "Barter in Russia," Problems of Economic Transition, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 42(11), pages 51-79, March.
  14. V. Makarov & G. Kleiner, 1999. "Barter in Russia: Institutional Stage," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  15. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July.
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Citations

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Cited by:
  1. Fleischman, Gary & Herz, Paul, 2005. "An empirical investigation of trends in barter activity in the Russian Federation," The International Journal of Accounting, Elsevier, Elsevier, vol. 40(1), pages 39-63.
  2. Byung-Yeon Kim & Jukka Pirttilä & Jouko Rautava, 2002. "Money, Barter and Inflation in Russia," Macroeconomics, EconWPA 0209009, EconWPA.
  3. Dolud, Olena, 2004. "Nichtmonetäre Transaktionen in der ukrainischen Landwirtschaft: Determinanten, Spezifika und Folgen," Studies on the Agricultural and Food Sector in Central and Eastern Europe, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO), volume 24, number 93080.
  4. Vlad Ivanenko, 2004. "Access to liquidity and non-monetary trade in Russia," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 16(1), pages 21-38.
  5. Richard B. Goud Jr., 2002. "Inter-Firm Non-Monetary Transactions in Russia: A Literature Review," Development and Comp Systems 0207001, EconWPA.
  6. Vahabi, Mehrdad, 2011. "Soft budget constraint and the parastatal sector," MPRA Paper 37926, University Library of Munich, Germany.
  7. Vlad Ivanenko & Dmitry Mikheyev, 2002. "The Role of Non-monetary Trade in Russian Transition," Post-Communist Economies, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(4), pages 405-419.
  8. Vasily Astrov & Korkut Boratav & Sandor Richter, 2002. "Monthly Report 05/2002," wiiw Monthly Reports, The Vienna Institute for International Economic Studies, wiiw 2002-05, The Vienna Institute for International Economic Studies, wiiw.

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