Bankrtuptcy in Russia: External Management Performance

The project examines the performance of the external management procedure on the data set from the arbitration court of the Udmurt Republic and the unique data set of politically connected firms that went bankrupt 1995–2004 in Russia. We use a narrow definition of political connections: a CEO or a member of an executive board being a member of par-liament or a top executive at the federal, regional, or municipal level. We show that political connections matter for the timing of bankruptcy procedures. Also, political connections do not result in efficiency-enhancing bankruptcies; in line with a politicians-and-firms story, politically connected firms preserve employment rather than increase productivity. Based on the court level data, we find that debt concentration increases likelihood of external management initiation, whereas external management itself decreases the share of total debt repaid. However, there is no evidence of adminis-trative expenses inflation in favor of a particular unsecured creditor under the assumption of a tradeoff between inflation of administrative expenses and main debt repayment.