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Bankruptcy Law in Latin America: Past and Future

Aloisio Araujo and Bruno Funchal ()

Economía Journal, 2005, vol. Volume 6 Number 1, issue Fall 2005, 149-216

Abstract: This paper studies bankruptcy law in Latin America, focusing on the Brazilian reform. We start with a review of the international literature on this subject. Next we examine the economic incentives associated with several aspects of bankruptcy laws and insolvency procedures in general, as well as the trade-offs involved. We follow this theoretical discussion with an empirical evaluation of the quality of current insolvency procedures in Latin America. We find that the region is governed by a set of laws that is inefficient even when compared with regions of lower per capita income. This inefficiency has severe consequences for credit markets and the cost of capital. Next we focus on the recent Brazilian bankruptcy reform, analyzing its main components and possible effects. The appendix describes difficulties of the reform process in Brazil and lessons other Latin American countries can learn from it.

Keywords: Bankruptcy; Financial Distress; Legal System; Law and Economics (search for similar items in EconPapers)
JEL-codes: G33 K40 K00 (search for similar items in EconPapers)
Date: 2005
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