NBER Working Papers and Publications
|March 2008||Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans|
with João M. P. De Mello
in Financial Markets Volatility and Performance in Emerging Markets, Sebastian Edwards and Márcio G. P. Garcia, editors
|May 2006||Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans|
with Joao M.P. De Mello: w12252
A large body of literature has stressed the institution-development nexus as critical in explaining differences in countries%u2019 economic performance. The empirical evidence, however, has been mainly at the aggregate level, associating macro performance with measures of quality of institutions. This paper, by relating a judicial decision on the legality of payroll loans in Brazil to bank-level decision variables, provides micro evidence on how creditor legal protection affects market performance. Payroll loans are personal loans with principal and interests payments directly deducted from the borrowers%u2019 payroll check, which, in practice, makes a collateral out of future income. In June 2004, a high-level federal court upheld a regional court ruling that had declared payroll deductio...