Capture of Bankruptcy: Theory and Russian Evidence
CEFIR Working Paper No. 3
35 Pages Posted: 15 Dec 2000 Last revised: 19 Dec 2009
Date Written: June 18, 2003
Laws that work well in a country with the rule of law may produce unexpected outcomes in a corrupt environment. We argue that the Russian legal system is impaired by the capture of regional divisions of arbitrage courts, and analyze the consequences of this capture. Using a theoretical model and an empirical analysis, we conclude the following: first, governors in alliance with managers of large regional enterprises use bankruptcy to expropriate the federal government and outside investors; and second, the bankruptcy law does not put pressure on mangers to restructure, instead, it may even prevent restructuring.
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