Research Discussion Papers, Bank of Finland
No 16/2006:
Legislation, investor protection and financial growth
Elina Rainio
Abstract: According to recent law and finance research, legislation
is essential to financial development. More effi-cient financial markets
would be achieved by reforming the laws governing investor protection and
cor-porate governance systems. The Companies Act has traditionally played a
very important role in the Fin-nish regulation of firms and financial
markets. Nevertheless, the concrete effects of the Finnish corporate law
have never before been examined properly. The aim of this study is to
investigate the effects of the previous extensive reform of the Companies
Act in 1980. The reform improved both shareholder and creditor rights, but
the level of creditor rights rose substantially higher than the level of
shareholder rights measured by different indices. The impact on stock
returns was assessed by examining how news reports on the reform affected
returns during the 1970s. Only the most important news had a significant
impact on the returns. Otherwise there were no big surprises in the reform
process and the stock prices adjusted efficiently to the new information
relating to the small and closed financial markets. (pdf in Finnish)
Keywords: companies act; financial markets; investor protection; news; corporate governance; (follow links to similar papers)
JEL-Codes: G14; G32; G38; (follow links to similar papers)
55 pages, October 10, 2006
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