The Brazilian Bankruptcy Law Experiment
41 Pages Posted: 30 May 2011
Date Written: 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.
Keywords: Financing Policy, Bankruptcy, Law
JEL Classification: G32, G33, K2
Suggested Citation: Suggested Citation