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Court Enforcement, Bank Loans and Firm Investment: evidence from a bankruptcy reform in Brazil

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  • Jacopo Ponticelli
  • Leonardo S. Alencar

Abstract

We exploit variation in the congestion of civil courts across Brazilian municipalities, together with a bankruptcy reform increasing secured creditors’ protection, to estimate the effect of enforcement on firm access to finance, investment and size. We find that firms operating in municipalities with less congested courts experienced larger increase in the use of secured loans, as well as a larger increase in investment and value of output in the years after the reform. To establish the direction of causality, we use an instrumental variable strategy that exploits Brazilian state laws on judicial organization, and focus on differences in court congestion across otherwise similar neighboring municipalities located across judicial district borders within the same state. Together, the evidence indicates that differences in court enforcement affect the impact of financial reform on firm access to finance, investment and size.

Suggested Citation

  • Jacopo Ponticelli & Leonardo S. Alencar, 2016. "Court Enforcement, Bank Loans and Firm Investment: evidence from a bankruptcy reform in Brazil," Working Papers Series 425, Central Bank of Brazil, Research Department.
    • Handle: RePEc:bcb:wpaper:425
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    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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