The effects of judicial quality on bankruptcy outcomes

Resumo

This thesis contains three interrelated articles. In this work, I empirically investigate whether the quality of court enforcement affects the use and the outcomes of corporate bankruptcy procedures. For this purpose, I create a dataset on Brazilian bankruptcy requests between 2000 and 2015 and match to detailed information on bank credit history, from the Credit Information System (SCR) dataset of the Central Bank of Brazil, and to the comprehensive employer-employee dataset Relac˜ao Anual de Informa¸c˜oes Sociais (RAIS) of the Brazilian Ministry of Labor. As measures of quality of court enforcement, I use the average level of court congestion and the years in court for liquidation cases of each judicial district. I exploit the high variation in these measures across municipalities in the state of S˜ao Paulo and the law provision that a bankruptcy request must be filed where are located the debtors’ headquarters or most of their operations. To establish a causal relation, I implement an instrumental variable strategy that exploits states’ laws on judicial organization to create an exogenous measure of potential extra jurisdiction of a judicial district that strongly predicts the level of congestion and years in court. In the first article I investigate whether the congestion level of courts affects a creditor’s decision to request or not the liquidation of a defaulted debtor. I 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. This evidence suggests that the quality of the judiciary affects the use by the creditors of their legal protection prescribed by the bankruptcy law. In the second article I analyze whether court congestion affects the resolutions of bankruptcy procedures. I find that firms operating in municipalities with more congested courts have a lower probability of being liquidated in the end of a reorganization procedure. Exploiting the employer-employee dataset to create a proxy of firm closure, I find evidence in the same direction, indicating that the higher the congestion of the courts, the lower the probability that the firm under reorganization will exit the market. Additionally, I 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. This article brings evidence of one of the possible mechanisms on how the quality of court enforcement generates distortionary effects on the outcomes of bankruptcy systems. Finally, in the third article, I investigate whether court enforcement affects firm employment around bankruptcy. I find that firms operating in municipalities with a lower level of court enforcement decrease relatively less their employment level in the years around bankruptcy, suggesting that they promote relatively less separations. This article brings evidence of a real outcome of bankrupt firms affected by the quality of court enforcement.

Ficha do documento

Tipo

Tese

Ano

2018

Instituição

Fundação Getulio Vargas

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso aberto

Identificador

oai:repositorio.fgv.br:10438/27272

Temas

Economia

Palavras-chave

FalênciaLeiFinanças corporativasCréditoEconomiaSociedades comerciais - FinançasCréditosMorosidade da justiça