Gil Nogueira - Research

WORKING PAPERS

Judicial Enforcement, Credit Frictions, and the Transmission of Bankruptcy through Firm Networks

We show that weak judicial enforcement and credit frictions jointly govern the transmission of corporate distress through trade-credit networks. Weak judicial enforcement increases the losses associated with defaulted trade credit, while credit frictions limit trade creditors' ability to absorb those losses. We exploit variation in court congestion generated by a nationwide reform that reassigned pending bankruptcy cases across courts. Trade creditors are more likely to go bankrupt when their trade debtor's case is handled by a congested court and when they face binding credit frictions. Bank relationships mitigate these frictions and insulate trade creditors from distress transmission. A counterfactual exercise shows that moving from the least to the most efficient courts would reduce bankruptcy propagation by 40% and increase aggregate sales by 2%.

PUBLICATIONS

Journal of Finance (forthcoming)

(with Diana Bonfim)

We analyze how corporate reorganization, compared to liquidation, changes labor outcomes for workers at firms facing bankruptcy. Reorganization persistently reduces earnings losses primarily by improving employer-worker matching. Even though most workers end up leaving reorganized firms, reorganization improves employment transitions for these workers. Earnings losses are smaller for educated workers, in thin labor markets, and for individuals with limited outside options, but not among workers with longer tenure. While reorganization retains labor in less productive firms, partial equilibrium analysis suggests that this effect is minor relative to the positive effect on earnings, except in the least productive firms.

(with Laura Blattner and Luísa Farinha)

Management Science, 2023

We provide evidence that the yield impact of unconventional monetary policy is not a sufficient statistic to measure the strength of the bank lending channel of unconventional monetary policy. As a laboratory, we study three major positive events in the European sovereign debt crisis—the Greek debt restructuring (private sector involvement (PSI)), outright monetary transactions (OMT), and quantitative easing (QE)—using credit registry and security-level bank balance sheet data from Portugal, a country that was directly exposed to all three events. Even though the price of sovereign debt increased by substantially more after the PSI and OMT announcements, only QE led banks to reduce their net sovereign debt holdings and had statistically and economically significant effects on lending to firms and households. The differential effect on banks’ behavior reflects two forces. First, lower bank capitalization levels during the PSI and OMT episodes as well as disincentives to sell sovereign bonds because of their collateral value in the European Central Bank’s long-term refinancing operation facilities reduce the effectiveness of the recapitalization channel. Second, only QE involved direct asset purchases by the central bank and thereby induced a portfolio rebalancing channel from sovereign debt to loans.

(with Diana Bonfim and Steven Ongena)

Review of Finance, 2021

We study local loan conditions when banks close branches. In places where branch closures do not take place, firms that purposely switch banks receive a 63 basis points discount. However, after the closure of nearby branches of their credit granting banks, firms that locally and hurriedly transfer to other banks receive no such discount. Yet, the loan default rate for the latter (more expensive) transfer loans is on average a full percentage point lower than that for the former (cheaper) switching loans. This suggests that transfer firms are “better” quality than switching firms. In summary, even if local markets remain competitive, when banks close branches, firms lose.