TY  - JOUR
AU  - Costa, Ana Carla A
AU  - De Mello, Joao M.P.
TI  - Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12252
PY  - 2006
Y2  - May 2006
DO  - 10.3386/w12252
UR  - http://www.nber.org/papers/w12252
L1  - http://www.nber.org/papers/w12252.pdf
N1  - Author contact info:
Ana Costa
E-Mail: anacosta@tendencias.com.br

João Manoel de Mello
PUC-Rio
E-Mail: joao.mello@bcb.gov.br
M1  - published as Ana Carla A. Costa, João M. P. De Mello. "Judicial Risk and Credit Market Performance: Micro Evidence from Brazilian Payroll Loans," in Sebastian Edwards and Márcio G. P. Garcia, editors, "Financial Markets Volatility and Performance in Emerging Markets" University of Chicago Press (2008)

AB  - 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 deduction illegal. Using personal loans without payroll deduction as a control group, we assess whether the ruling had an impact on market performance. Evidence indicates that it had an adverse impact on risk perception, interest rates, and amount lent.
ER  -