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Are Russian commercial courts biased?Evidence from a natural bankruptcy experiment

Listed author(s):
  • Ariane Lambert-Mogiliansky

    (PSE - Paris-Jourdan Sciences Economiques - ENS Paris - École normale supérieure - Paris - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

  • Konstantin Sonin

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

  • Ekaterina Zhuravskaya

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

We study the nature of judicial bias in bankruptcy proceedings following the enactment of bankruptcy law in Russia in 1998. We find that regional political characteristics affected judicial decisions about the numbers and types of bankruptcy procedures initiated after the law took effect. In particular, 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 government. Poor judicial quality was also associated with higher incidence of reorganizations. In addition, the quality of the regional judiciary affected performance of firms in reorganization procedure: in regions with poor judicial quality firms in reorganization significantly underperformed firms not in bankruptcy; while the opposite was true in regions with high-quality judges. The effect of judicial quality on restructuring is particularly strong in regions with politically popular governors because the judicial bias in governor's favor is the highest in poor-quality courts when governors are popular. This evidence is consistent with previously reported anecdotes that suggested that politically strong regional governors used bankruptcy proceedings to protect firms from paying federal taxes.

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Paper provided by HAL in its series PSE Working Papers with number halshs-00590402.

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Date of creation: Oct 2006
Handle: RePEc:hal:psewpa:halshs-00590402
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00590402
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  1. Philippe Aghion & Oliver D. Hart & John Moore, 1994. "The Economics of Bankruptcy Reform," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 215-244 National Bureau of Economic Research, Inc.
  2. Maria Ponomareva & Ekaterina Zhuravskaya, 2004. "Federal tax arrears in Russia "Liquidity problems, federal redistribution or regional resistance?"," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(3), pages 373-398, 09.
  3. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
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  7. Stijn Claessens & Leora F. Klapper, 2005. "Bankruptcy around the World: Explanations of Its Relative Use," American Law and Economics Review, Oxford University Press, vol. 7(1), pages 253-283.
  8. Zhuravskaya, Ekaterina V., 2000. "Incentives to provide local public goods: fiscal federalism, Russian style," Journal of Public Economics, Elsevier, vol. 76(3), pages 337-368, June.
  9. Hay, Jonathan R & Shleifer, Andrei, 1998. "Private Enforcement of Public Laws: A Theory of Legal Reform," American Economic Review, American Economic Association, vol. 88(2), pages 398-403, May.
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  11. Berkovitch, Elazar & Israel, Ronen, 1999. "Optimal Bankruptcy Laws across Different Economic Systems," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 347-377.
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  13. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
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  18. Sonin, Konstantin, 2010. "Provincial protectionism," Journal of Comparative Economics, Elsevier, vol. 38(2), pages 111-122, June.
  19. repec:hrv:faseco:30728041 is not listed on IDEAS
  20. Ernst-Ludwig VON THADDEN & Erik BERGLÖF & Gérard ROLAND, 2003. "Optimal Debt Design and the Role of Bankruptcy," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.13, Université de Lausanne, Faculté des HEC, DEEP.
  21. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
  22. Cai, Hongbin & Treisman, Daniel, 2004. "State corroding federalism," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 819-843, March.
  23. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 995-1025.
  24. Nicola Gennaioli & Andrei Shleifer, 2005. "The Evolution of Precedent," NBER Working Papers 11265, National Bureau of Economic Research, Inc.
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