The labor effects of judicial bias in bankruptcy

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

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish (US)
Article number103720
JournalJournal of Financial Economics
Volume150
Issue number2
DOIs
StatePublished - Nov 2023

Keywords

  • Brazil
  • Financial distress
  • Information frictions
  • Wages

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

Fingerprint

Dive into the research topics of 'The labor effects of judicial bias in bankruptcy'. Together they form a unique fingerprint.

Cite this