Debt Overhang and Barter in Russia

Sergei Guriev (1) , Igor Makarov (2) , Mathilde Maurel (3)

1 NES - New Economic School (Rossiyskaya Ekonomicheskaya Shkola)
2 MIT Sloan - Sloan School of Management
3 CERDI - Centre d'Études et de Recherches sur le Développement International

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 from two independent surveys is consistent with the model's predictions.

Domaines: Economies et finances

Sergei Guriev, Igor Makarov, Mathilde Maurel. Debt Overhang and Barter in Russia. Journal of Comparative Economics, 2002, 30 (4), pp.635 - 656. ⟨10.1006/jcec.2002.1797⟩. ⟨hal-03416720⟩