IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2287.html
   My bibliography  Save this paper

The vicious circles of control - regional governments and insiders in privatized Russian enterprises

Author

Listed:
  • Desai, Raj M.
  • Goldberg, Itzhak

Abstract

How can one account for the puzzling behavior of insider-managers who, in stripping assets from the veryfirms they own, appear to be stealing from one pocket to fill the other? The authors suggest that such asset-stripping and failure to restructure are the consequences of interactions between insiders (manager-owners) and regional governments in a particular property rights regime. In this regime, the ability to realize value is limited by uncertainty and illiquidity, so managers have little incentive to increase value. As the central institutions that rule Russia have ceded their powers to the regions, regional governments have imposed various distortions on enterprises to protect local employment. Prospective outsider-investors doubt they can acquire the control rights they need for restructuring firms and doubt they can avoid the distortions regional governments impose on the firms in which they might invest. The result: little restructuring and little new investment. And regional governments, knowing the firms'taxable cash flows will have been reduced through cash flow diversion, have responded by collecting revenues in kind. To disentangle these vicious circles of control, the authors propose a pilot for transforming ownership in insider-dominated firms through a system of simultaneous tax-debt-for-equity conversion and resale through competitive auctions. The objective: to show regional governments, for example, that a more sustainable way to protect employment is to give managers incentives to increase enterprises'value by transferring effective control to investors. The proposed mechanism would provide cash benefits to insiders who agree to sell control to outside investors. The increased cash revenue (rather than in-kind or money surrogates) would enable regional governments to finance safety nets for the unemployed and to promote other regional initiatives.

Suggested Citation

  • Desai, Raj M. & Goldberg, Itzhak, 2000. "The vicious circles of control - regional governments and insiders in privatized Russian enterprises," Policy Research Working Paper Series 2287, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2287
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2000/03/03/000094946_00021806025572/Rendered/PDF/multi_page.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Andreas Heinrich & Aleksandra Lis & Heiko Pleines, 2007. "Factors Influencing Corporate Governance in post-Socialist Companies: an Analytical Framework," William Davidson Institute Working Papers Series wp896, William Davidson Institute at the University of Michigan.
    2. Alexandra Reppegather & Manuela Troschke, 2006. "Graduelle Transformation von Wirtschaftsordnungen: Ein Vergleich der Reformstrategien Chinas und Usbekistans," Working Papers 260, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    3. Irina Denisova & Stanislav Kolenikov & Ksenia Yudaeva, 2000. "Child Benefits and Child Poverty," Working Papers w0006, Center for Economic and Financial Research (CEFIR).
    4. Kornai, János, 2000. "Tíz évvel a Röpirat angol kiadásának megjelenése után. A szerző önértékelése [Ten years after the English edition of `The Road to a Free Economy'. The author's self-evaluation]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 647-661.
    5. Zakolyukina Anastasia, 2006. "Bankrtuptcy in Russia: External Management Performance," EERC Working Paper Series 06-09e, EERC Research Network, Russia and CIS.
    6. Janos Kornai, 2001. "Ten Years after “The Road to a Free Economy”: Self-estimate of the Author," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 42-60.
    7. Laura Solanko, 2002. "Fiscal competition in a transition economy," Public Economics 0209002, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2287. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.