The Brazilian Bankruptcy Law Experiment
Aloisio Pessoa de Araujo
Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE) and IMPA
Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças
FUCAPE Business School; Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE)
May 26, 2011
In early 2005 a new bankruptcy law was approved by the Brazilian Congress, taking effect a few months later. The new legislation improved creditor protection and the bankruptcy system’s efficiency. This paper tries to shed some light on the empirical consequences of a bankruptcy reform on a poorly developed credit market. Using data from Brazilian and non-Brazilian firms, we estimated, using three alternative models, the effect of the bankruptcy reform on contractual and non-contractual debt variables. In general, all the models yielded similar results. Concerning contractual debt variables, we found a significant increase in the total amount and in long-term debt and a reduction in the cost of debt. For noncontractual debt variables, we found a reduction in the bank debt to public debt ratio, an increase in the number of domestic loan contracts and no impact on the number of foreign loan contracts.
Number of Pages in PDF File: 41
Keywords: Financing Policy, Bankruptcy, Law
JEL Classification: G32, G33, K2
Date posted: May 30, 2011
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