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Court Enforcement, Bank Loans and Firm Investment: Evidence from a Bankruptcy Reform in Brazil

49 Pages Posted: 7 Mar 2014 Last revised: 17 Jun 2015

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2015

Abstract

I exploit variation in the congestion of civil courts across Brazilian municipalities, together with a bankruptcy reform increasing secured creditors' protection, to estimate the effect of enforcement on firm access to finance, investment and size. I find that firms operating in municipalities with less congested courts experienced larger increase in the use of secured loans, as well as a larger increase in investment and value of output in the years following the reform. To establish the direction of causality I use an instrumental variable strategy and focus on differences in court congestion across otherwise similar neighboring municipalities located across judicial district borders within the same state. Together, the evidence suggests that differences in court enforcement affect the impact of financial reform in developing countries.

Keywords: Courts, Financial Reform, Financial Frictions, Manufacturing Firms

JEL Classification: G33, O16

Suggested Citation

Ponticelli, Jacopo, Court Enforcement, Bank Loans and Firm Investment: Evidence from a Bankruptcy Reform in Brazil (May 30, 2015). Chicago Booth Research Paper No. 14-08; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2405092 or http://dx.doi.org/10.2139/ssrn.2405092

Jacopo Ponticelli (Contact Author)

Kellogg School of Management - Department of Finance ( email )

Evanston, IL 60208
United States

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