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Whither Corporate Russia?

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Abstract

Using firm-level information obtained from the Russian Trading System stock exchange from 1998 through 2006, we estimate growth performance of the Russian corporate sector. We find consistently improving growth, and note that higher growth performance is correlated with greater partial state re-acquisition and state corporate governance presence. We argue that the latter served, not only to safeguard against misappropriation of firm assets and government subsidies, but also to discourage managers from opting for shorter than optimal investment durations. Thus state corporate-governance strategy may serve as a second best policy to a more developed property rights system.

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Notes

  1. See conditions in Russia at the outset of the Yeltsin and Clinton Administrations, http://www.fas.org/news/russia/2000/russia/part02.htm.

  2. When vouchers worth 10,000 roubles were allocated to citizens in order for them to acquire shares in formerly state-owned enterprises, they ended up trading at 60% discount not only because of economic hardship, but also because ordinary investors became dubious of receiving any substantial amount of income from voucher ownership (Broadman, 1999).

  3. Intriligator (1994) suggests that this is perhaps not least because of the illegality in the way the oligarchs had acquired the enterprises.

  4. Also see Semi Organisation Report on Russian Spending Continues, April 2009.

  5. All financial data were recorded at the end of the trading year. A Hausman test was used to determine if a fixed or a random effects model was suitable. The test showed that the null hypothesis of both estimation methods yielding similar coefficients was not rejected; hence, the random effects model was used as it produced more efficient estimators.

  6. See Standard and Poor's RTS Indices: Index Methodology report, 2009, and www.tradingeconomics.com. We also did not find any company leaving RTS stock exchange between 1998 and 2006.

  7. Because of the missing observations for both at least one time period and at least one entity, we have an unbalanced data set.

  8. The identification of major shareholders mechanism is outlined in subsection ‘Methodology and description of variables’.

  9. We include year dummies and industry dummies (industry dummies were constructed based on our industry categories in Table 1) in all of our regressions in order to account for any macroeconomic and industry-specific effects.

  10. Following the argument that improved firm growth performance is all attributable to substantial subsidies provided by the state under SPCS, and as long-term debt variable ‘increases’ Tobin's Q variable, the effect of SPCS on Tobin's Q is overstated, we re-run our regression excluding the long-term debt component from our Tobin's Q measure. We find that while the magnitude and significance of SPCS variable has diminished slightly (the variable has a coefficient of 0.127, which is statistically significant at 10 percent level), the co-partnership effect is still noteworthy, and SPCS is the only form of ownership that remains significant.

  11. It can also be seen that the size variable became negative and significant, while firm longevity and ownership concentration no longer affect Tobin's Q.

  12. In this regression analysis we are only interested in the effect of SPCS adoption in period t-1 on firm growth performance in period t, therefore we do not include other ownership variables in the regression.

  13. Fearon and Laitin (2003) also address the endogeneity problem by employing a lagged value of per capita GDP as explanatory variable when establishing a relationship between civil war and GDP.

  14. It can alternatively be suggested that other performance measures, such as the return on assets or return on sales can potentially serve as robustness checks. However, while these variables capture firm performance, they are not designed to capture its growth prospects, which is a fundamental aspect of this study. For example, when we re-ran our regressions substituting Tobin's Q with above proxies, we found that only the size variable was significant when the dependent variable was return on assets, and no variable was reported to be significant when the dependent variable was return on sales, while R-squared statistic was 0.012 and Wald Chi squared statistic showed that the variables do not carry any explanatory power. Therefore, we argue that Tobin's Q remains the most powerful dependent variable, as it incorporates firm growth opportunities.

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We are grateful to John Turner, anonymous referees and the Editor for helpful comments and suggestions.

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    Nadia Vanteeva & Charles Hickson

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Vanteeva, N., Hickson, C. Whither Corporate Russia?. Comp Econ Stud 54, 173–201 (2012). https://doi.org/10.1057/ces.2011.31

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