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Law and stock markets: evidence from an emerging market

  • Korkeamäki, Timo

    (Hanken School of Economics and Bank of Finland)

  • Rainio, Elina

    (Garantia Ltd.)

  • Takalo, Tuomas

    ()

    (Bank of Finland Research)

A sweeping and protracted reform of corporate law took place in Finland in the 1970s. The reform brought significant improvements to investor protection and, similar to the US Sarbanes-Oxley Act, tightened disclosure rules at the cost of increasing the work load in corporate reporting. We find that the Finnish stock market generally reacts negatively to news of tightened disclosure rules and increased work loads, whereas news of delays in implementation of reform were largely positive. This raises the question of whether strengthening investor protection by requiring greater transparency necessarily promotes the development of financial markets. It also serves to remind that the implementation costs of reforms should not be overlooked.

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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/1001netti.pdf
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Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2010.

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Length: 34 pages
Date of creation: 10 Jan 2010
Date of revision:
Publication status: Published as Korkeamäki, Timo, Elina Rainio and Tuomas Takalo, 'Law and stock markets: evidence from an emerging market' in Economics of Transition , 2013, pages 509-551.
Handle: RePEc:hhs:bofrdp:2010_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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  1. Haidar, Jamal Ibrahim, 2009. "Investor protections and economic growth," Economics Letters, Elsevier, vol. 103(1), pages 1-4, April.
  2. Chen, Yehning & Hasan, Iftekhar, 2006. "The transparency of the banking system and the efficiency of information-based bank runs," Journal of Financial Intermediation, Elsevier, vol. 15(3), pages 307-331, July.
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