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The Labor Effects of Judicial Bias in Bankruptcy

Author

Listed:
  • Aloisio Araujo
  • Rafael Ferreira
  • Spyridon Lagaras
  • Flavio Moraes
  • Jacopo Ponticelli
  • Margarita Tsoutsoura

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.

Suggested Citation

  • Aloisio Araujo & Rafael Ferreira & Spyridon Lagaras & Flavio Moraes & Jacopo Ponticelli & Margarita Tsoutsoura, 2021. "The Labor Effects of Judicial Bias in Bankruptcy," NBER Working Papers 28640, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28640
    Note: CF DEV LE LS
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    Cited by:

    1. Miao, Miao & Yang, Yuxuan & Li, Xueyao & He, Wenjian, 2025. "Bankruptcy judicial reform and corporate fraud: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 103(C).
    2. Morten Grindaker & Andreas R. Kostøl & Kasper Roszbach, 2021. "Executive Labor Market Frictions, Corporate Bankruptcy and CEO Careers," Working Paper 2021/15, Norges Bank.
    3. Srhoj, Stjepan & Kovač, Dejan & Shapiro, Jacob N. & Filer, Randall K., 2023. "The impact of delay: Evidence from formal out-of-court restructuring," Journal of Corporate Finance, Elsevier, vol. 78(C).

    More about this item

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
    • K0 - Law and Economics - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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