Phoenix Rising: Legal Reforms and Changes in Valuations in Finland During the Economic Crisis
Timo P. Korkeamaki
Hanken School of Economics - Department of Finance and Statistics
The Wharton School - University of Pennsylvania
Hanken School of Economics - Department of Economics; Helsinki Center of Economic Research (HECER)
Bank of Finland Research Discussion Paper No. 1/2007
Boston University School of Management Working Paper No. 2006-18
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
Date posted: October 28, 2006 ; Last revised: October 27, 2008
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