International literature usually defines a corporate raid as an ‘unfriendly takeover’, without legal violation. Russian raiding is different due to the frequent use of force to seize the property. Russian raiders are the successors of the criminal entrepreneurs of 1990s, when criminal organizations owned about 55% of private capital (data by RAS, 1995). In the 2000s, as the state grew stronger, criminal entrepreneurs went into the shadows, but the threat of the use of force towards entrepreneurs did not disappear, instead evolving into new forms. Corporate raids are often accompanied by unlawful criminal prosecution of entrepreneurs followed by their imprisonment.
The researchers tried to find out what characteristics make a company attractive for raiders and how to avoid a raid. For example, it was noticed that raiders are usually significantly stronger and larger than the acquired companies and often operate in the same business field as their victim.
The researchers used the internal database of the ‘Business against Corruption’ (BAC) Centre for Public Procedures, which includes over 600 claims from Russian entrepreneurs on corporate raid cases from 2011 to 2013.
According to Kazun, their main problem in terms of research methods was that there is no one clear indicator of ‘forced pressure’ on a company through the use of intimidation and threats, and only indirect indicators can be used to measure it. ‘In this paper, we suggest using one more indicator of pressure on a company – the number of claims to the BAC Centre’, the researcher explained, ‘Taking into account all the limitations, this indicator allows us to obtain a quite precise evaluation of the intensity of corporate raid in various Russian regions’. An additional source of information for the study were the data on Russian regions’ economies collected by the HSE Institute for Industrial and Market Studies.
Three hypotheses were suggested and tested during the study:
During the first stage, the researchers studied the geographical distribution of raids. According to Anton Kazun, in order to take into account a region’s size, the number of raids was divided by the Gross Regional Product (GRP). ‘In our further calculations, we will use this indicator – the number of raids in the region per 100 billion roubles of GRP’, he explained.
The most intensive threatening pressure and intimidation on businesses was identified in Chuvash Republic, Astrakhan Oblast, Vologda Oblast, and Smolensk Oblast. About 40% of claims are in trade, manufacture and construction industries. Another 30% are from individual entrepreneurs, most of whom presumably work in trade or manufacture. This means that the development of manufacture and trade in a region can be seen as an indicator of its attractiveness for raiders.
The trade sector has been one of the fastest developing economic fields over the last decade. Raiders’ targets in the trade sector are individual entrepreneurs and small companies that own real estate but do not have big enough resources for protection. Attacks on the industrial sector are a kind of continuation of the process of redistributing the most attractive properties which started in the 1990s.
No clear correlation has been found between raids and construction development at a regional level. On one hand, raids are rarely registered where construction is underdeveloped, but they are also rare in the regions where the share of construction is over 10%. ‘These regions get subsidies from the state, and rent-oriented behaviour is limited there’, the author explained.
While the share of trade and manufacture in a particular Russian region predetermines the raiders’ interest, the intensity of economic crimes determines their opportunities. The research confirmed that the level of raiding is much higher in those regions with a high number of economic crimes.
The number of lawyers per capita is minimal and court resolutions are inaccessible (on the court websites) in regions with high level of raid. Such regions also fall behind in terms of the number of non-profit organizations per capita. In addition, the correlation between the number of judicial cases and the number of NPOs is almost linear.
The number of lawyers per capita reaches a maximum in regions with medium levels of raid and decreases as its intensity grows, Anton Kazun noted. ‘It turns out that there are fewer lawyers in the regions where there are no problems with raids and, accordingly, the level of economic crime is lower, as well as in those regions where the situations with raids is the worst’, and goes on to argues, ‘In the second case, probably, the legal community faces obstacles in their development. However, this observation has to be further checked through more research’.
The number of economic crimes in the region is an indicator of the possibility of a raiders’ attack.
On one hand, if entrepreneurs break the law often, this characterizes the business climate in the region. The probability of raid as an extreme form of economic crime is higher in a bad business climate.
On the other hand, the number of economic crimes is an indicator characterizing the work of the law-enforcement system. Investigators in these regions file more suits against entrepreneurs, which also may be a sign of law enforcement bodies’ desire to get rent.