Scandinavian Working Papers in Economics
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Bank of Finland 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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