Working Papers
Judicial discretion, credit, and the real economy (with Leonardo S. Alencar)
Coverage: Valor Econômico and Veja
Judicial decisions can have far-reaching effects beyond the immediate litigants, influencing how banks allocate credit and impacting the real economy. Exploiting the random assignment of judges in Brazilian local courts, we show that banks reduce lending after losing lawsuits decided by pro-debtor judges. These contractions disproportionately affect small firms with existing bank relationships, limiting credit renewal and reducing employment. Our results reveal a novel channel through which judicial discretion shapes the real economy and highlight that policies to strengthen credit markets must go beyond usual institutional reforms to account for judges’ behavior.
Trade liberalization and interregional credit reallocation
Resubmitted (Reject & Resubmit) - Journal of International Economics
This paper studies how bank branch networks transmit trade shocks across regions. Following Brazil’s trade liberalization, regions more exposed to tariff reductions experienced capital outflows. Geographically diversified banks reallocated funds away from more exposed regions toward other localities in their network, generating credit expansions in financially connected areas that were less impacted. These regional credit inflows are associated with stronger employment growth in the non-tradable sector, identifying banks' internal capital reallocation as a mechanism through which trade liberalization shapes regional economic outcomes.
Work in progress
This paper studies how beliefs about debt contract enforcement affect borrowing behavior. We exploit the random assignment of cases involving financial institutions to pro-creditor or pro-debtor judges within judicial districts to obtain exogenous variation in court decisions. We show that these decisions convey information about the likelihood of debt contract modification to plaintiffs’ co-workers. Following more debtor-friendly outcomes, plaintiffs’ co-workers increase borrowing—particularly through unsecured credit instruments such as credit cards and overdraft facilities—and subsequently experience higher default rates. The results indicate that debt contract modifications may have effects beyond directly affected parties through belief-based spillovers.
Credit market intervention during non-crisis periods