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Phoenix Rising: Legal Reforms and Changes in Valuations in Finland During the Economic CrisisTimo P. KorkeamakiHanken School of Economics - Department of Finance and Statistics Yrjo KoskinenBoston University - School of Management; Centre for Economic Policy Research (CEPR) Tuomas TakaloBank of Finland, Monetary Policy and Research Department March 2007 Bank of Finland Research Discussion Paper No. 1/2007 Boston University School of Management Working Paper No. 2006-18 Abstract: Finland experienced an extremely severe economic depression in the early 1990s. As a part of the government's crisis management policies, 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.
Number of Pages in PDF File: 48 Keywords: corporate governance, bankruptcy, financial supervision, shareholder protection, creditors' rights, corporate valuations, political economy JEL Classification: G34, K22 working papers seriesDate posted: October 28, 2006 ; Last revised: October 27, 2008Suggested CitationContact Information
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