Phoenix rising: Legal reforms and changes in valuations in Finland during the economic crisis

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. AbstractFinland 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. JEL Classification: G34, K22

Nordic Economic Policy Review

“…The evidence on which of the two opposing effects dominates remains inconclusive (see, e.g., Subramanian 2009, andCerqueiro et al 2014, for conflicting results) and likely depend on the institutional context. There is little research on the Nordic countries regarding the matter, but Koskinen et al (2007) find that weakening of strong creditor rights in corporate bankruptcy in Finland boosted corporate investments and firm valuations.…”

Resilient Agility: A Necessary Condition for Employee and Organizational Sustainability

“…Although change is a question of degree, substantial change, the type that requires responses, seems to have become more frequent. Dislocations that require rapid and effective responses by social actors include, among others, economic crises [1][2][3][4][5], the COVID-19 pandemic [6][7][8][9][10], rapid and continuous technological change associated with digitalization and automation [11][12][13][14][15], increased labor force diversity and inclusion [16][17][18], net-zero and other transitions [19][20][21], and the need to integrate multiple levels, spaces, times, and interests.…”