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RESEARCH PRODUCT

Law of Finance: Evidence from Finland

subject

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Although it is widely acknowledged that the benefits of corporate governance reform could be substantial, systematic evidence on such reforms is scant. We both document and evaluate a contemporary corporate governance reform by constructing 18 measures of shareholder and creditor protection for Finland for the period 1980-2000. The measures reveal that shareholder protection has been strengthened whereas creditor protection has been weakened. We also demonstrate how the reform is consistent with a reorganisation of the Finnish financial market in which a bank-centred financial system shifted from relationship-based debt finance towards increasing dominance by the stock market. We find evidence that the development of shareholder protection has been a driver of the reorganisation, whereas the changes in creditor protection have mirrored market developments.