Debt Overhang and Barter in Russia

International audienceThis paper develops a model in which costly barter is used by firms to protect working capital against outside creditors. Although creditors could agree to postpone debt payments and to avoid destroying the firm's working capital, if the firm cannot commit not to divert cash ex post, the outcome of renegotiation still provides ex ante incentives to use barter. We show that the greater is the debt overhang, the more likely is the use of barter, with and without the possibility of debt restructuring. Empirical evidence from Russian firm-level data is shown to be consistent with the model's predictions