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Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis

  • Korkeamäki, Timo

    ()

    (Gonzaja University, Boston University School of Management and Bank of Finland.)

  • Koskinen, Yrjö

    ()

    (Boston University School of Management and CEPR)

  • Takalo, Tuomas

    ()

    (Bank of Finland Research)

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.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0701netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2007.

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Length: 39 pages
Date of creation: 19 Jan 2007
Date of revision:
Handle: RePEc:hhs:bofrdp:2007_001
Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.suomenpankki.fi/en/

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