Praia de Botafogo, 190 - 11th floor
Rio de Janeiro-RJ, Brazil
Research Interests: Empirical Corporate Finance, Development Economics, Political Economy, Law and Finance, Banking
Revise and Resubmit, Review of Financial Studies
[Paper Version: September 2021]
[NBER Paper Version: July 2021]
Presentations (*Coauthors): CMU-Pitt-PSU Finance Conference* (2019), Mannheim* (2020), Northwestern Kellogg* (2021), Groningen* (Scheduled), Labor and Finance Group Online Seminar* (Scheduled), Penn State* (2021), CEPR Adam Smith Workshop* (2021), UofToronto Finance Conference* (2021), SFS Cavalcade* (2021), FIRS* (2021), EFA* (2021), FGV EPGE (2021), FGV EESP (2021), INSPER (Scheduled), BYU Red Rock Conference 2021* (Scheduled), RIDGE Public Economics Workshop* (Scheduled), AFA 2022* (Scheduled)
Abstract: Judicial decisions in bankruptcy are often influenced by the goal of preserving employment in financially distressed firms. Is such pro-labor bias good for workers? We construct a new court-level measure of pro-labor bias based on judges' deviations from the letter of the law, and exploit the random assignment of cases to courts within judicial districts in the state of Sao Paulo in Brazil to study the effect of pro-labor bias on labor market outcomes. Employees whose firms were assigned to a high pro-labor court experience 4.2 percent lower post-bankruptcy earnings relative to employees whose firms were assigned to a low pro-labor court. This negative effect is persistent in the seven-year period after bankruptcy. We provide evidence consistent with this effect being driven by high pro-labor courts disproportionately favoring firm continuation. While employees of liquidated firms experience a large initial drop in earnings upon bankruptcy and a fast convergence to their pre-bankruptcy level, the earnings of employees of reorganized firms remain significantly below their pre-bankruptcy level. Our results indicate that, on average, pro-labor bias can be detrimental for workers' earnings and employment trajectories after bankruptcy.
Court Congestion and Bankruptcy Resolutions: Evidence from Brazil (with Aloisio Araujo and Rafael Ferreira)
[Draft Coming Soon]
Presentations: 40th Meeting of the Brazilian Econometric Society (2018), 24th LACEA-LAMES Annual Meeting (2019), 14th Annual Conference on Empirical Legal Studies (2019)
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.
Court Congestion and Creditor Passivity: Evidence from Bankruptcy Requests in Brazil (with Aloisio Araujo, Gustavo Araujo, Rafael Ferreira and Jacopo Ponticelli)
[Draft Coming Soon]
Presentations: 42nd Meeting of the Brazilian Econometric Society (2020), DEPEP Working Paper Series – Banco Central do Brasil (2021)
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.
Research in Progress
Can the Positive Credit Registry Solve Asymmetric Information Problems and Boost Credit Market in Brazil? (with Gustavo Araujo and Everton Santos)
Estimating Expected and Unexpected Losses: Evidence from an Ecuadorian Microcredit Portfolio (with Adriana Uquillas)