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Good, fast or cheap - pick one: bankruptcy design and frictions in Brazil

Grant number: 19/20823-8
Support type:Scholarships in Brazil - Master
Effective date (Start): March 01, 2020
Effective date (End): March 31, 2021
Field of knowledge:Applied Social Sciences - Economics
Principal researcher:Rafael de Vasconcelos Xavier Ferreira
Grantee:José Matheus Gomes Pessôa Andrade
Home Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

Optimal bankruptcy design deals with the following trilemma: deciding correctly when to liquidate firms, making that decision quickly without gathering creditor´s information, or minimizing bankruptcy costs (Kordana and Posner, 1999). Stated otherwise, one must choose between a good, a fast or a cheap bankruptcy procedure. Choosing side in this trilemma was especially difficult due to institutional restrictions in Brazil (Araujo and Funchal, 2005). Nevertheless, the 2005 Brazilian Bankruptcy reform had positive effects on credit supply (Araujo et al., 2012) and firm's investment (Ponticelli e Alencar, 2016). However, delays (Sacramone et al., 2017) and low recovery rates (Jupetipe et al., 2017) marks the current proceedings. Given this demotivating scenario, there is an ongoing reform discussion in Brazil. It is aimed to, among other points, stimulate Debtor-in-possession (DIP) financing and giving fiscal claims a higher priority in reorganization processes. Our goal is to contribute to this discussion by estimating Dou et al. (2019) structural model for bankruptcy frictions for Brazil using data already partially tabulated. In particular, we will assess the proposed reforms effects excess liquidation/reorganization, timing of agreements and recovery rates. Consequently, our project also contributes to the literature of optimal bankruptcy design and estimation of non cooperative games. (AU)

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