Research Interests: Corporate Finance, Labor and Finance, Banking, Law and Economics, Development Economics

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Publications and Accepted Papers

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The Labor Effects of Judicial Bias in Bankruptcy (with Aloisio Araujo, Rafael Ferreira, Spyridon Lagaras, Jacopo Ponticelli and Margarita Tsoutsoura)

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Journal of Financial Economics, 150(2), 2023.

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[Paper]

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[NBER Paper Version: June 2023]

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Abstract: We exploit the random assignment of cases across courts in the state of Sao Paulo in Brazil to study the effect of judicial bias on labor market outcomes. Employees assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages after bankruptcy. The effect is concentrated in periods of economic expansion. We explore several potential mechanisms that can drive this result, including risk aversion, adjustment costs, non-wage amenities and information frictions. The evidence suggests that imperfect information about outside options in the local labor market can rationalize this result.

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Working Papers

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Court Congestion and Bankruptcy Resolutions: Evidence from Brazil (with Aloisio Araujo and Rafael Ferreira)

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Abstract: In this paper we investigate the effects of the congestion of courts on the resolutions of bankruptcy procedures. Using a novel data set on Brazilian bankruptcy requests, we find evidence that firms operating in municipalities with more congested courts have a lower probability of liquidation during a reorganization procedure. Presenting a simple theoretical framework, we argue that the possible mechanism is that creditors' recovery in liquidation is lower in less efficient courts, potentially increasing firms' positions on debt renegotiation, what ultimately increases their probability of overcoming the financial distress and not being liquidated. Exploiting a detailed Brazilian employer-employee dataset to create a proxy of firm closure, we find evidence in the same direction, indicating that the higher the level of congestion of the courts, the lower the probability that the firm under reorganization will exit the market. Additionally, we find that, conditional on exiting, it takes longer to a firm exit the market since a reorganization or liquidation request in municipalities with more congested courts.

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Court Congestion and Creditor Passivity: Evidence from Bankruptcy Requests in Brazil (with Aloisio Araujo, Gustavo Araujo, Rafael Ferreira and Jacopo Ponticelli)

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Abstract: This paper uses a novel dataset on Brazilian bankruptcy requests to investigate whether the congestion of courts affects a creditor's decision to request or not the liquidation of a defaulted debtor. Exploiting the large variation in the level of congestion of the courts across the state of São Paulo, we find that banks are more passive with defaulted debtors that are located in municipalities with more congested courts, waiting longer since default until requesting the liquidation. Implementing an instrumental variable strategy based on the laws that rule the judicial organization, we find results in the same direction. With a simple theoretical framework, we argue that the possible mechanism is that creditors' recovery in liquidation is lower in less efficient courts, potentially increasing firms' bargaining power and leading creditors to postpone the decision about requesting the liquidation of a debtor. This evidence suggests that the congestion of the judiciary affects the use by the creditors of their legal protection prescribed by the bankruptcy law.

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In Progress

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Precedents and Judicial Behavior  (with Daniel Chen and Henrik Sigstad)

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Asymmetric information in the Brazilian credit market: testing adverse selection predictions  (with Gustavo Araujo, Felipe Iachan and Everton Santos)

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Estimating Expected and Unexpected Losses: Evidence from an Ecuadorian Microcredit Portfolio  (with Adriana Uquillas)