Corporate Reorganization and the Reallocation of Labor in Bankruptcy

116 Pages Posted: 12 Mar 2021 Last revised: 9 Apr 2024

See all articles by Diana Bonfim

Diana Bonfim

Banco de Portugal; Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics

Gil Nogueira

Bank of Portugal

Date Written: February 29, 2024

Abstract

We analyze how corporate reorganization and liquidation change labor reallocation during bankruptcy using randomized judge assignments and linked Portuguese employer-employee and firm data. Reorganization reduces the negative effect of bankruptcy on employee earnings, even with most workers leaving reorganized firms. We examine plausible mechanisms and find evidence that the retention of general skills and improved job-match quality contribute meaningfully to this effect. The average cost of labor misallocation caused by reorganization is small. However, for some workers in the least productive filers, this cost can be large, outweighing the effect on earnings.

Keywords: corporate reorganization, bankruptcy

JEL Classification: G33, G38, J24, J63, K39

Suggested Citation

Bonfim, Diana and Nogueira, Gil, Corporate Reorganization and the Reallocation of Labor in Bankruptcy (February 29, 2024). Available at SSRN: https://ssrn.com/abstract=3761746 or http://dx.doi.org/10.2139/ssrn.3761746

Diana Bonfim

Banco de Portugal ( email )

Av Almirante Reis, 71
P-1150-012 Lisboa
Portugal

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Gil Nogueira (Contact Author)

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

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