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Debt Overhang and Barter in Russia

  • Sergei Guriev
  • Igor Makarov
  • Mathilde Maurel

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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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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  1. Krugman, Paul, 1988. "Financing vs. forgiving a debt overhang," Journal of Development Economics, Elsevier, vol. 29(3), pages 253-268, November.
  2. 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).
  3. Stewart C. Myers & Raghuram G. Rajan, 1998. "The Paradox Of Liquidity," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 733-771, August.
  4. Marin, Dalia & Schnitzer, Monika, 2005. "Disorganization and financial collapse," European Economic Review, Elsevier, vol. 49(2), pages 387-408, February.
  5. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," CID Working Papers 49, Center for International Development at Harvard University.
  6. Brana, Sophie & Maurel, Mathilde, 1999. "Barter in Russia: Liquidity Shortage Versus Lack of Restructuring," CEPR Discussion Papers 2258, C.E.P.R. Discussion Papers.
  7. V. Makarov & G. Kleiner, 2000. "Barter in Russia," Problems of Economic Transition, M.E. Sharpe, Inc., vol. 42(11), pages 51-79, March.
  8. 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 49, William Davidson Institute at the University of Michigan.
  9. Guriev, Sergei & Kvassov, Dmitri, 2004. "Barter for price discrimination," International Journal of Industrial Organization, Elsevier, vol. 22(3), pages 329-350, March.
  10. V. Makarov & G. Kleiner, 1999. "Barter in Russia: Institutional Stage," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 4.
  11. 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 0004, Centre for Economic Reform and Transformation, Heriot Watt University.
  12. repec:ebd:wpaper:50 is not listed on IDEAS
  13. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July.
  14. Susan J. Linz & Gary Krueger, 1998. "Enterprise Restructuring in Russia's Transition Economy: Formal and Informal Mechanisms," William Davidson Institute Working Papers Series 152, William Davidson Institute at the University of Michigan.
  15. 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 134, William Davidson Institute at the University of Michigan.
  16. 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.
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