Are Russian Commercial Courts Biased? Evidence from a Bankruptcy Law Transplant

We study the nature of judicial bias in bankruptcy proceedings following the enactment of bankruptcy law in Russia in 1998. We find that regional political characteristics affected judicial decisions about the numbers and types of bankruptcy procedures initiated after the law took effect. In particular, controlling for indicators of firms' insolvency and the quality of the regional judiciary, reorganization procedures were significantly more frequent in regions with politically popular governors and governors who had hostile relations with the federal government. Poor judicial quality was also associated with higher incidence of reorganizations. In addition, the quality of the regional judiciary affected performance of firms in reorganization procedure: in regions with poor judicial quality firms in reorganization significantly underperformed firms not in bankruptcy; while the opposite was true in regions with high-quality judges. The effect of judicial quality on restructuring is particularly strong in regions with politically popular governors because the judicial bias in governor's favor is the highest in poor-quality courts when governors are popular. This evidence is consistent with previously reported anecdotes that suggested that politically strong regional governors used bankruptcy proceedings to protect firms from paying federal taxes.Nous étudions la nature du biais judiciaire dans les procédures de faillite suite à l'introduction en Russie de la loi de 1998 sur les faillites. Nous trouvons que les caractéristiques politiques du pouvoir régional affectaient les décisions judiciaires quant au nombre et aux types de procédure de faillite engagée après la mise en vigueur de la loi de 1998. Nos résultats soutiennent la thèse selon laquelle les gouverneurs politiquement puissants usaient de cette législation pour dé livrer les entreprises de leurs dettes d'impôts au pouvoir fédéral