The Labor Effects of Judicial Bias in Bankruptcy

55 Pages Posted: 19 Jan 2021 Last revised: 9 May 2022

See all articles by Aloisio Pessoa de Araujo

Aloisio Pessoa de Araujo

Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE) and IMPA

Rafael Ferreira

University of São Paulo (FEA-USP) - Department of Economics

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School

Flavio Moraes

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças

Jacopo Ponticelli

Northwestern University - Kellogg School of Management; NBER

Margarita Tsoutsoura

Washington University in Saint Louis, John M. Olin Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); National Bureau of Economic Research (NBER)

Date Written: December 29, 2020

Abstract

We exploit the random assignment of cases across courts in the state of Sao Paulo in Brazil to study the effect of judicial bias on labor market outcomes. Employees assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages after bankruptcy. We argue that imperfect information about outside options in the local labor market can rationalize this result. The effect is concentrated in periods of economic expansion. During recessions, instead, judicial bias favoring continuation helps preserve employees' earnings after bankruptcy.

Keywords: Brazil, Judicial Decisions, Labor Earnings, Financial Distress, Outside Options

JEL Classification: G33, G20, K10

Suggested Citation

Araujo, Aloisio Pessoa de and Ferreira, Rafael and Lagaras, Spyridon and Moraes, Flavio and Ponticelli, Jacopo and Tsoutsoura, Margarita, The Labor Effects of Judicial Bias in Bankruptcy (December 29, 2020). Available at SSRN: https://ssrn.com/abstract=3757117 or http://dx.doi.org/10.2139/ssrn.3757117

Aloisio Pessoa de Araujo

Getulio Vargas Foundation (FGV) - Escola de Pos-Graduacao (EPGE) and IMPA ( email )

R. Dr. Neto de Araujo 320 cj 1307
Rio de Janeiro, Rio de Janeiro 22250-900
Brazil

Rafael Ferreira

University of São Paulo (FEA-USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo
Brazil

Spyridon Lagaras

University of Pittsburgh, Katz Graduate Business School ( email )

3950 Roberto Clemente Dr
334 Mervis Hall
Pittsburgh, PA Allegheny 15260
United States

Flavio Moraes

Getulio Vargas Foundation (FGV) - FGV/EPGE Escola Brasileira de Economia e Finanças ( email )

Praia de Botafogo 190/1125, CEP
Rio de Janeiro RJ 22253-900
Brazil

Jacopo Ponticelli

Northwestern University - Kellogg School of Management ( email )

2211 Campus Dr
Evanston, IL 60208
United States

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/ponticelli/index.html

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Margarita Tsoutsoura (Contact Author)

Washington University in Saint Louis, John M. Olin Business School ( email )

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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