The labor effects of judicial bias in bankruptcy

Aloisio Araujo; Rafael Ferreira; Spyridon Lagaras; Flavio Moraes; Jacopo Ponticelli; Margarita Tsoutsoura

doi:10.1016/j.jfineco.2023.103720

Journal of Financial Economics Vol. 150 No. 2 2023

The labor effects of judicial bias in bankruptcy

Aloisio Araujo; Rafael Ferreira¹; Spyridon Lagaras²; Flavio Moraes³; Jacopo Ponticelli^4,5; Margarita Tsoutsoura^6,5

¹ Universidade de São Paulo · ² University of Pittsburgh · ³ Universidade Federal do Rio de Janeiro · ⁴ Northwestern University · ⁵ Centre for Economic Policy Research · ⁶ Washington University in St. Louis

open access

Abstract

We study the effect of judicial bias favoring firm continuation in bankruptcy on the labor market outcomes of employees by exploiting the random assignment of cases across courts in the State of São Paulo in Brazil. Employees of firms assigned to courts that favor firm continuation are more likely to stay with their employer, but they earn, on average, lower wages three to five years after bankruptcy . We discuss several potential mechanisms that can rationalize this result, and provide evidence that imperfect information about outside options in the local labor market and adjustment costs associated with job change play an important role.

DOI: 10.1016/j.jfineco.2023.103720
Volume: 150
Issue: 2
Pages: 103720
Language: en
Sources: bibtex:phds-export.bib openalex crossref

The labor effects of judicial bias in bankruptcy

Abstract

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