The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises
How can one account for the puzzling behavior of insider-managers who, in stripping assets from the very firms they own, appear to be stealing from one pocket to fill the other? The authors suggest that such asset-stripping and failure to restructu...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/02/438380/vicious-circles-control-regional-governments-insiders-privatized-russian-enterprises http://hdl.handle.net/10986/22338 |
| id |
okr-10986-22338 |
|---|---|
| recordtype |
oai_dc |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
AFFILIATE AGRICULTURE ARBITRAGE ASSET STRIPPING AUCTIONS BALANCE SHEETS BANK ACCOUNTS BANK LOANS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY PROCEEDINGS BANKS CAPITAL GAINS CAPITAL MARKETS CASH BENEFITS CASH FLOWS CASH PAYMENTS CASH-FLOW COALITIONS COMMUNIST COMMUNIST PARTY CONSOLIDATION CORPORATE FINANCE CORPORATE GOVERNANCE DEBT DECREE DECREES DEVOLUTION DISINTERMEDIATION DIVIDENDS ECONOMIC CHANGE ECONOMIC GROWTH ECONOMIC TRENDS ECONOMIES IN TRANSITION EMPLOYMENT ENFORCEABLE PROPERTY RIGHTS ENTERPRISE OWNERSHIP ENTERPRISE REFORM ENTERPRISE RESTRUCTURING EXPENDITURES FEDERAL BUDGETS FEDERAL GOVERNMENT FINANCIAL SECTORS FISCAL FISCAL SITUATION FOREIGN DIRECT INVESTMENT FREE MARKETS GDP GOVERNANCE FAILURES GOVERNMENT AUTHORITY GOVERNMENT INTERVENTION GOVERNMENT OFFICIALS GOVERNMENTAL POLICY HARD BUDGET CONSTRAINTS HOLDING COMPANIES ILLIQUIDITY INCOME INSOLVENCY INSOLVENT INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CHANGE INSTITUTIONAL CONSTRAINTS LABOR MARKETS LABOR PRODUCTIVITY LAWS LEASED ASSETS LEGISLATION LEGISLATORS LIQUIDATION LOCAL AUTHORITIES LOCAL ENTERPRISES LOCAL GOVERNMENTS MIDDLE INCOME COUNTRIES MUNICIPAL GOVERNMENTS NET WORTH NEW ENTRANTS OFFSHORE BANKING OIL OWNERSHIP STRUCTURE POLICY PREFERENTIAL TAX TREATMENT PRIVATE OWNERSHIP PRIVATE PROPERTY PRIVATIZATION PRODUCTIVE ASSETS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS PUBLIC FINANCES PUBLIC PROCUREMENT QUOTAS REAL SECTOR REDEMPTION REPRESENTATIVES RETURN ON INVESTMENT SAFETY NETS SECURITIES SHAREHOLDERS SOCIAL POLICY SOCIAL SERVICES SOFT BUDGET CONSTRAINTS STATE AGENCIES STATE ENTERPRISES STATE POWER STOCKHOLDERS STREAMS SUBSIDIARIES SUBSIDIARY TAKEOVER TAX ARREARS TAX AUTHORITIES TAX COLLECTIONS TAX PAYMENTS TAX REVENUES TAXATION TRADE UNIONS TRANSITION ECONOMIES TRANSPORT UNEMPLOYMENT VOTING VOUCHER PRIVATIZATION WEALTH WORLD POLITICS |
| spellingShingle |
AFFILIATE AGRICULTURE ARBITRAGE ASSET STRIPPING AUCTIONS BALANCE SHEETS BANK ACCOUNTS BANK LOANS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY PROCEEDINGS BANKS CAPITAL GAINS CAPITAL MARKETS CASH BENEFITS CASH FLOWS CASH PAYMENTS CASH-FLOW COALITIONS COMMUNIST COMMUNIST PARTY CONSOLIDATION CORPORATE FINANCE CORPORATE GOVERNANCE DEBT DECREE DECREES DEVOLUTION DISINTERMEDIATION DIVIDENDS ECONOMIC CHANGE ECONOMIC GROWTH ECONOMIC TRENDS ECONOMIES IN TRANSITION EMPLOYMENT ENFORCEABLE PROPERTY RIGHTS ENTERPRISE OWNERSHIP ENTERPRISE REFORM ENTERPRISE RESTRUCTURING EXPENDITURES FEDERAL BUDGETS FEDERAL GOVERNMENT FINANCIAL SECTORS FISCAL FISCAL SITUATION FOREIGN DIRECT INVESTMENT FREE MARKETS GDP GOVERNANCE FAILURES GOVERNMENT AUTHORITY GOVERNMENT INTERVENTION GOVERNMENT OFFICIALS GOVERNMENTAL POLICY HARD BUDGET CONSTRAINTS HOLDING COMPANIES ILLIQUIDITY INCOME INSOLVENCY INSOLVENT INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CHANGE INSTITUTIONAL CONSTRAINTS LABOR MARKETS LABOR PRODUCTIVITY LAWS LEASED ASSETS LEGISLATION LEGISLATORS LIQUIDATION LOCAL AUTHORITIES LOCAL ENTERPRISES LOCAL GOVERNMENTS MIDDLE INCOME COUNTRIES MUNICIPAL GOVERNMENTS NET WORTH NEW ENTRANTS OFFSHORE BANKING OIL OWNERSHIP STRUCTURE POLICY PREFERENTIAL TAX TREATMENT PRIVATE OWNERSHIP PRIVATE PROPERTY PRIVATIZATION PRODUCTIVE ASSETS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS PUBLIC FINANCES PUBLIC PROCUREMENT QUOTAS REAL SECTOR REDEMPTION REPRESENTATIVES RETURN ON INVESTMENT SAFETY NETS SECURITIES SHAREHOLDERS SOCIAL POLICY SOCIAL SERVICES SOFT BUDGET CONSTRAINTS STATE AGENCIES STATE ENTERPRISES STATE POWER STOCKHOLDERS STREAMS SUBSIDIARIES SUBSIDIARY TAKEOVER TAX ARREARS TAX AUTHORITIES TAX COLLECTIONS TAX PAYMENTS TAX REVENUES TAXATION TRADE UNIONS TRANSITION ECONOMIES TRANSPORT UNEMPLOYMENT VOTING VOUCHER PRIVATIZATION WEALTH WORLD POLITICS Desai, Raj M. Goldberg, Itzhak The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| geographic_facet |
Europe and Central Asia Europe and Central Asia Russian Federation |
| relation |
Policy Research Working Paper;No. 2287 |
| description |
How can one account for the puzzling
behavior of insider-managers who, in stripping assets from
the very firms they own, appear to be stealing from one
pocket to fill the other? The authors suggest that such
asset-stripping and failure to restructure are the
consequences of interactions between insiders
(manager-owners) and regional governments in a particular
property rights regime. In this regime, the ability to
realize value is limited by uncertainty and illiquidity, so
managers have little incentive to increase value. As the
central institutions that rule Russia have ceded their
powers to the regions, regional governments have imposed
various distortions on enterprises to protect local
employment. Prospective outsider-investors doubt they can
acquire the control rights they need for restructuring firms
and doubt they can avoid the distortions regional
governments impose on the firms in which they might invest.
The result: little restructuring and little new investment.
And regional governments, knowing the firms' taxable cash
flows will have been reduced through cash flow diversion,
have responded by collecting revenues in kind. To
disentangle these vicious circles of control, the authors
propose a pilot for transforming ownership in
insider-dominated firms through a system of simultaneous
tax-debt-for-equity conversion and resale through
competitive auctions. The objective: to show regional
governments, for example, that a more sustainable way to
protect employment is to give managers incentives to
increase enterprises' value by transferring effective control
to investors. The proposed mechanism would provide cash
benefits to insiders who agree to sell control to outside
investors. The increased cash revenue (rather than in-kind
or money surrogates) would enable regional governments to
finance safety nets for the unemployed and to promote other
regional initiatives. |
| format |
Working Paper |
| author |
Desai, Raj M. Goldberg, Itzhak |
| author_facet |
Desai, Raj M. Goldberg, Itzhak |
| author_sort |
Desai, Raj M. |
| title |
The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| title_short |
The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| title_full |
The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| title_fullStr |
The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| title_full_unstemmed |
The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises |
| title_sort |
vicious circles of control : regional governments and insiders in privatized russian enterprises |
| publisher |
World Bank, Washington, DC |
| publishDate |
2015 |
| url |
http://documents.worldbank.org/curated/en/2000/02/438380/vicious-circles-control-regional-governments-insiders-privatized-russian-enterprises http://hdl.handle.net/10986/22338 |
| _version_ |
1764450630854770688 |
| spelling |
okr-10986-223382021-04-23T14:04:07Z The Vicious Circles of Control : Regional Governments and Insiders in Privatized Russian Enterprises Desai, Raj M. Goldberg, Itzhak AFFILIATE AGRICULTURE ARBITRAGE ASSET STRIPPING AUCTIONS BALANCE SHEETS BANK ACCOUNTS BANK LOANS BANKRUPTCY BANKRUPTCY PROCEDURES BANKRUPTCY PROCEEDINGS BANKS CAPITAL GAINS CAPITAL MARKETS CASH BENEFITS CASH FLOWS CASH PAYMENTS CASH-FLOW COALITIONS COMMUNIST COMMUNIST PARTY CONSOLIDATION CORPORATE FINANCE CORPORATE GOVERNANCE DEBT DECREE DECREES DEVOLUTION DISINTERMEDIATION DIVIDENDS ECONOMIC CHANGE ECONOMIC GROWTH ECONOMIC TRENDS ECONOMIES IN TRANSITION EMPLOYMENT ENFORCEABLE PROPERTY RIGHTS ENTERPRISE OWNERSHIP ENTERPRISE REFORM ENTERPRISE RESTRUCTURING EXPENDITURES FEDERAL BUDGETS FEDERAL GOVERNMENT FINANCIAL SECTORS FISCAL FISCAL SITUATION FOREIGN DIRECT INVESTMENT FREE MARKETS GDP GOVERNANCE FAILURES GOVERNMENT AUTHORITY GOVERNMENT INTERVENTION GOVERNMENT OFFICIALS GOVERNMENTAL POLICY HARD BUDGET CONSTRAINTS HOLDING COMPANIES ILLIQUIDITY INCOME INSOLVENCY INSOLVENT INSTITUTIONAL ARRANGEMENTS INSTITUTIONAL CHANGE INSTITUTIONAL CONSTRAINTS LABOR MARKETS LABOR PRODUCTIVITY LAWS LEASED ASSETS LEGISLATION LEGISLATORS LIQUIDATION LOCAL AUTHORITIES LOCAL ENTERPRISES LOCAL GOVERNMENTS MIDDLE INCOME COUNTRIES MUNICIPAL GOVERNMENTS NET WORTH NEW ENTRANTS OFFSHORE BANKING OIL OWNERSHIP STRUCTURE POLICY PREFERENTIAL TAX TREATMENT PRIVATE OWNERSHIP PRIVATE PROPERTY PRIVATIZATION PRODUCTIVE ASSETS PRODUCTIVITY PROFITABILITY PROPERTY RIGHTS PUBLIC FINANCES PUBLIC PROCUREMENT QUOTAS REAL SECTOR REDEMPTION REPRESENTATIVES RETURN ON INVESTMENT SAFETY NETS SECURITIES SHAREHOLDERS SOCIAL POLICY SOCIAL SERVICES SOFT BUDGET CONSTRAINTS STATE AGENCIES STATE ENTERPRISES STATE POWER STOCKHOLDERS STREAMS SUBSIDIARIES SUBSIDIARY TAKEOVER TAX ARREARS TAX AUTHORITIES TAX COLLECTIONS TAX PAYMENTS TAX REVENUES TAXATION TRADE UNIONS TRANSITION ECONOMIES TRANSPORT UNEMPLOYMENT VOTING VOUCHER PRIVATIZATION WEALTH WORLD POLITICS How can one account for the puzzling behavior of insider-managers who, in stripping assets from the very firms they own, appear to be stealing from one pocket to fill the other? The authors suggest that such asset-stripping and failure to restructure are the consequences of interactions between insiders (manager-owners) and regional governments in a particular property rights regime. In this regime, the ability to realize value is limited by uncertainty and illiquidity, so managers have little incentive to increase value. As the central institutions that rule Russia have ceded their powers to the regions, regional governments have imposed various distortions on enterprises to protect local employment. Prospective outsider-investors doubt they can acquire the control rights they need for restructuring firms and doubt they can avoid the distortions regional governments impose on the firms in which they might invest. The result: little restructuring and little new investment. And regional governments, knowing the firms' taxable cash flows will have been reduced through cash flow diversion, have responded by collecting revenues in kind. To disentangle these vicious circles of control, the authors propose a pilot for transforming ownership in insider-dominated firms through a system of simultaneous tax-debt-for-equity conversion and resale through competitive auctions. The objective: to show regional governments, for example, that a more sustainable way to protect employment is to give managers incentives to increase enterprises' value by transferring effective control to investors. The proposed mechanism would provide cash benefits to insiders who agree to sell control to outside investors. The increased cash revenue (rather than in-kind or money surrogates) would enable regional governments to finance safety nets for the unemployed and to promote other regional initiatives. 2015-07-29T15:55:10Z 2015-07-29T15:55:10Z 2000-02 Working Paper http://documents.worldbank.org/curated/en/2000/02/438380/vicious-circles-control-regional-governments-insiders-privatized-russian-enterprises http://hdl.handle.net/10986/22338 English en_US Policy Research Working Paper;No. 2287 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications Research Europe and Central Asia Europe and Central Asia Russian Federation |