A B S T R A C T
The present essay analyses the importance of the commercial courts in enforcing bankruptcy laws during the Old Republic (1889-1930) in the city of Rio de Janeiro, capital of Brazil at that time. The argument is that the enforcement of bankruptcy laws was very important to determine the success of bond issues as a way for firms to raise capital in the stock market. The success of bonds depended to a large extent in the confidence investors had that they were going to receive some money back in case of bankruptcy of the firms. During the republic joint stock companies gathered an important part of their capital through bond issues. I present some evidence of bankruptcy court cases for joint stock companies found at the National Archive in Rio de Janeiro, from their analysis I show that the courts usually enforced bankruptcy laws and that creditors usually got paid a fraction or all of their credits after bankruptcy. Thus the courts reduced the risk to investors by insuring that they would get part or all their money back, helping to make bonds an attractive asset that could be sold easily by firms to get credit. The final conclusion is that laws and courts are important for economic growth, and I suggest that the study of the judiciary should be extended to understand other institutional features that shaped Brazil’s history.
