Research Discussion Papers, Bank of Finland
No 1/2007:
Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis
Timo Korkeamäki ()
, Yrjö Koskinen ()
and Tuomas Takalo ()
Abstract: Finland experienced an extremely severe economic
depression in the early 1990s. In the midst of this crisis, significant new
legislation was passed that increased supervisory powers of financial
market regulators and reformed bankruptcy procedures, significantly
decreasing the protection of creditors. We show that the introduction of
these new laws resulted in positive abnormal stock returns. The new laws
also lead to increases in firms’ Tobin’s q, especially for more levered
firms. In contrast to previous studies, our results also suggest that
public supervision of financial markets fosters rather than hampers
financial market development.
Keywords: corporate governance; bankruptcy; financial supervision; shareholder protection; creditors’ rights; corpo-rate valuations; political economy; (follow links to similar papers)
JEL-Codes: G34; K22; (follow links to similar papers)
39 pages, January 19, 2007
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