The labor effects of judicial bias in bankruptcy

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

Journal of Financial Economics, 2023, vol. 150, issue 2

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.

Keywords: Brazil; Wages; Information frictions; Financial distress (search for similar items in EconPapers)
JEL-codes: G20 G33 K10 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Labor Effects of Judicial Bias in Bankruptcy (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:150:y:2023:i:2:s0304405x23001605

DOI: 10.1016/j.jfineco.2023.103720

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