Debt Overhang and Barter in Russia

Posted: 29 Aug 2001

See all articles by Sergei Guriev

Sergei Guriev

Institut d'Etudes Politiques de Paris (Sciences Po); Centre for Economic Policy Research (CEPR)

Igor Makarov

London School of Economics & Political Science (LSE)

Mathilde Maurel

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques

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Abstract

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.

Keywords: Barter, debt overhang, demonetization, renegotiation

JEL Classification: P30

Suggested Citation

Guriev, Sergei and Makarov, Igor and Maurel, Mathilde, Debt Overhang and Barter in Russia. Available at SSRN: https://ssrn.com/abstract=270458

Sergei Guriev (Contact Author)

Institut d'Etudes Politiques de Paris (Sciences Po) ( email )

27 rue Saint-Guillaume
Paris Cedex 07, 75337
France

HOME PAGE: http://econ.sciences-po.fr/staff/sergei-guriev

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Igor Makarov

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Mathilde Maurel

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques ( email )

106/112 boulevard de l'Hopital
Paris Cedex 13, 75647
France

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