Debt Overhang and Barter in Russia

Sergei Guriev, Igor Makarov and Mathilde Maurel

No 339, William Davidson Institute Working Papers Series from William Davidson Institute at the University of Michigan

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 is consistent with the model's predictions.

Keywords: barter; demonetisation; debt overhang; renegotiations (search for similar items in EconPapers)
Pages: pages
Date: 2000-09-01
New Economics Papers: this item is included in nep-eec and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2002)
Working Paper: Debt Overhang and Barter in Russia (2001)
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