Phoenix Rising: Legal Reforms and Changes in Valuations in Finland During the Economic Crisis

Posted: 9 Nov 2007 Last revised: 27 Oct 2008

See all articles by Timo P. Korkeamaki

Timo P. Korkeamaki

Hanken School of Economics - Department of Finance and Statistics

Yrjo Koskinen

Haskayne School of Business, University of Calgary

Tuomas Takalo

Bank of Finland, Monetary Policy and Research Department; VATT Institute for Economic Research

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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.

Keywords: corporate governance, bankruptcy, financial supervision, shareholder protection, creditors' rights, corporate valuations, political economy

JEL Classification: G34, K22

Suggested Citation

Korkeamaki, Timo and Koskinen, Yrjo J and Takalo, Tuomas, Phoenix Rising: Legal Reforms and Changes in Valuations in Finland During the Economic Crisis. Journal of Financial Stability, Vol. 3, No. 1, 2007. Available at SSRN: https://ssrn.com/abstract=1028647

Timo Korkeamaki

Hanken School of Economics - Department of Finance and Statistics ( email )

FI-00101 Helsinki
Finland

Yrjo J Koskinen (Contact Author)

Haskayne School of Business, University of Calgary ( email )

SH 154, 2500 University Drive NW
Calgary, Alberta T2N 1N4
Canada
+1-403-220-5540 (Phone)

HOME PAGE: http://contacts.ucalgary.ca/info/ha/profiles/1-7257931

Tuomas Takalo

Bank of Finland, Monetary Policy and Research Department ( email )

P.O. Box 160
Helsinki, FIN-00101
Finland

HOME PAGE: http://https://sites.google.com/site/tuomastakalo/

VATT Institute for Economic Research

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