Financial market liberalization and the relationship between stock returns and financial leverage in Finland

Abstract

The results of this note indicate that the return–leverage relation turned from negative to positive in Finland in the late 1980s. This finding is explained by the liberalization of Finnish financial markets and the decrease in the degree of financial leverage of Finnish listed firms. The results highlight the remarkable effect of the financial market liberalization on the financial management of Finnish firms and the empirical results on the Finnish financial markets.