Court Enforcement and Firm Productivity: Evidence from a Bankruptcy Reform in Brazil
University of Chicago - Booth School of Business
December 1, 2013
Chicago Booth Research Paper No. 14-08
Fama-Miller Working Paper
Financial reform designed to improve creditor protection is often encouraged as a way to increase credit access for firms in developing countries. In this paper, I show that when court enforcement works poorly, financial reform is ineffective in fostering both credit access and the productivity of firms. In the empirical analysis, I exploit variation in the congestion of civil courts across Brazilian judicial districts at the outset of a bankruptcy reform. I find that, after the reform, firms operating in districts with less congested courts experienced higher access to bank loans and larger increase in investment and productivity than firms operating in districts with more congested courts. I propose an instrumental variable strategy to show that these results are not driven by district-level omitted variables.
Number of Pages in PDF File: 52
Keywords: Credit Constraints, Financial Reform, Manufacturing Firms
JEL Classification: G33, O16
Date posted: March 7, 2014
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