Impact of Bankruptcy Law Reform on Capital Markets in Brazil

31 Pages Posted: 17 Feb 2009

See all articles by Padma Kadiyala

Padma Kadiyala

Pace University - Lubin School of Business

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Date Written: February, 17 2009

Abstract

New bankruptcy laws which give greater protection to creditors were signed into law in Brazil on Feb 9, 2005. The paper tests whether greater protection to creditors led to growth in capital markets in Brazil as predicted by La Porta, Lopez-de-Silanes, Shleifer and Vishny (1997, 1998, 2002 and 2006). Our analysis shows that the money market responded positively with a drop of 600 basis points in the Selic, the benchmark interest rate, after the new law went into effect. Aggregate stock market indexes reacted positively when the new rules were signed into law. Long-term returns to stock market indexes consisting of firms which offer greater protection to shareholders, are positive, which strongly supports the La Porta, et al predictions.

Keywords: Bankruptcy law, law and finance, emerging markets, asset prices

JEL Classification: G15

Suggested Citation

Kadiyala, Padma, Impact of Bankruptcy Law Reform on Capital Markets in Brazil (February, 17 2009). Pace University Finance Research Paper No. 2009/01, Available at SSRN: https://ssrn.com/abstract=1345076 or http://dx.doi.org/10.2139/ssrn.1345076

Padma Kadiyala (Contact Author)

Pace University - Lubin School of Business ( email )

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