Whither corporate Russia?(RESEARCH NOTE)

On the basis of individual Russian firm data, over the period of 1998-2006, drawn from the Russian Trading System stock exchange, our paper constructs various measures of company performance. Our findings indicate dramatically enhanced firm performance after the introduction of the Putin regime. This is particularly the case for companies located in industries requiring large, lump-sum investment outlays, suggesting longer-term investment horizons. We find, for example, that changes in Tobin's Q are positively correlated with the introduction and development of a policy of state sponsored corporate co-partnership.

Our paper concentrates on the important role played in Russia's economic revival by the development of the modern Russian corporation, characterized by such state participation. Under the Putin regime, the state became a major co-owner of key firms, as well as becoming a significant decision maker. Improved corporate performance is closely correlated with the advancement of this co-ownership system. We argue that the latter serves as a substitute for the lack of a well-developed property right system which would act to prevent under-investment. Yeltsin's reforms are regarded as unsuccessful because of the absence of such a system. For example, under his regime, the emerging quasi-private owners systematically underutilized and tended to misappropriate assets, producing a severe fall in production and investment.

Our hypothesis is that the present evolving co-partnership between the state and major private corporate managers has mitigated asset-stripping behavior and hold-up problems arising from market transactions, and reduced the propensity of rent-seeking behavior of minor bureaucrats. Thus, the co-partnership system works to facilitate the ability of corporations to commit to a longer investment strategy.

When we control for firm-specific characteristics, our findings illustrate that a combination of state and private ownership serves as an effective mechanism to promote growth in the corporate sector, as measured by increases in Tobin's Q. This is particularly the case in natural resource and utility sectors, where assets are expected to have high specificity and require longer periods of optimal duration.

While an effective legal system may still remain the final objective, we argue that the substitute corporate governing structure has proved to be, over our sample period, a second best profitable alternative.

N. Vanteeva * C. Hickson

Queen's University Belfast, Belfast, Northern Ireland, UK

e-mail: nvanteeva01@qub.ac.uk

C. Hickson

e-mail: C.Hickson@qub.ac.uk

Published online: 27 January 2009

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