What Limits Decentralization at Russian Firms?
The paper investigates the influence of institutional factors on decentralization of decision-making at Russian firms. Decentralization is important for firms’ growth and development. While in the absence of decentralization a firm’s growth opportunities are limited by time and abilities of its CEO, decentralization opens doors for quicker decision-making on a larger range of questions and creates room for the firm’s growth. However, decentralization is associated with agency risks and risks of information leakage. Weak judicial system, high corruption, and low level of trust increase risks associated with decentralization and, therefore, can significantly limit firms’ opportunities for decentralization. In this paper the author empirically explores the influence of corruption, quality of court system and trust on decentralization of decision-making at firms in the Russian regions. The empirical analysis presented in the paper demonstrates the important limiting influence of corruption on decentralization of decision-making at Russian firms. In the regions with higher corruption firms are less likely to decentralize and more likely to choose a management model with centralized decision-making and selection of people for top positions through connections. At the same time, the presented analysis does not reveal any significant influence of the court system’s quality or the level of trust in the Russian regions on the probability of decentralization at Russian firms.