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

Bank of Finland Research Discussion Paper No. 1/2007

Boston University School of Management Working Paper No. 2006-18

48 Pages Posted: 28 Oct 2006 Last revised: 27 Oct 2008

Timo P. Korkeamaki

Hanken School of Economics - Department of Finance and Statistics

Yrjo Koskinen

Haskayne School of Business, University of Calgary

Tuomas Takalo

Hanken School of Economics - Department of Economics; Helsinki Center of Economic Research (HECER)

Multiple version iconThere are 2 versions of this paper

Date Written: March 2007

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 P. and Koskinen, Yrjo and Takalo, Tuomas, Phoenix Rising: Legal Reforms and Changes in Valuations in Finland During the Economic Crisis (March 2007). Bank of Finland Research Discussion Paper No. 1/2007; Boston University School of Management Working Paper No. 2006-18. Available at SSRN: https://ssrn.com/abstract=940665 or http://dx.doi.org/10.2139/ssrn.940665

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://haskayne.ucalgary.ca/haskayne_info/profiles/yrjo-koskinen

Tuomas Takalo

Hanken School of Economics - Department of Economics ( email )

PO Box 479
FI-00101 Helsinki
Finland

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

Helsinki Center of Economic Research (HECER) ( email )

FI-00014 Helsinki
Finland

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

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