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

  • Ariane Lambert-Mogiliansky

    (PSE (CNRS, EHESS, ENPC, ENS) Paris)

  • Konstantin Sonin

    ()

    (New Economic School/CEFIR and CEPR)

  • Ekaterina Zhuravskaya

    ()

    (New Economic School/CEFIR and CEPR)

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, re-organization 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 re-organizations. Second, the quality of the regional judiciary ffected performance of firms under the re-organization procedure: in regions with low quality judges, firms that were re-organized 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 re-organization outperformed firms not in bankruptcy proceedings. This effect of judicial quality on the performance of re-organized 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.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0099.

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Length: 34 pages
Date of creation: Mar 2007
Date of revision:
Handle: RePEc:cfr:cefirw:w0099
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