Citation

Discussion Paper Details

Please find the details for DP2686 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Debt Overhang and Barter in Russia

Author(s): Sergei Guriev, Igor Makarov and Mathilde Maurel

Publication Date: February 2001

Keyword(s): Barter, Debt Overhang, Demonetization and Renegotiation

Programme Area(s): Transition Economics

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.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2686

Bibliographic Reference

Guriev, S, Makarov, I and Maurel, M. 2001. 'Debt Overhang and Barter in Russia'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=2686