The Labor Effects of Judicial Bias in Bankruptcy

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

No 28640, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G33 J30 K0 O16 (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-lam and nep-lma
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Citations: View citations in EconPapers (7)

Published as Aloisio Araujo & Rafael Ferreira & Spyridon Lagaras & Flavio Moraes & Jacopo Ponticelli & Margarita Tsoutsoura, 2023. "The labor effects of judicial bias in bankruptcy," Journal of Financial Economics, vol 150(2).

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