Are Russian Commercial Courts Biased? Evidence from a Natural Bankruptcy Experiment

31 Pages Posted: 23 Mar 2007

See all articles by Ariane Lambert-Mogiliansky

Ariane Lambert-Mogiliansky

Paris School of Economics (PSE)

Konstantin Sonin

University of Chicago - Harris Public Policy; Higher School of Economics; Centre for Economic Policy Research (CEPR)

Ekaterina Zhuravskaya

Paris School of Economics (PSE)

Date Written: December 2006

Abstract

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, which suggested that politically strong regional governors used bankruptcy proceedings to protect firms from paying federal taxes.

Keywords: Bankruptcy, capture, incentives, regional governments, Russia, transition

JEL Classification: D23, G33, H11, H77

Suggested Citation

Lambert, Ariane and Sonin, Konstantin and Zhuravskaya, Ekaterina, Are Russian Commercial Courts Biased? Evidence from a Natural Bankruptcy Experiment (December 2006). CEPR Discussion Paper No. 5998. Available at SSRN: https://ssrn.com/abstract=976068

Ariane Lambert

Paris School of Economics (PSE) ( email )

48 bd JOURDAN
Paris, 75014 75014
France

Konstantin Sonin (Contact Author)

University of Chicago - Harris Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Higher School of Economics ( email )

20 Myasnitskaya street
Moscow, 119017
Russia

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Ekaterina Zhuravskaya

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

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