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History of financial research and education in Finland

2011; Taylor & Francis; Volume: 17; Issue: 5-6 Linguagem: Inglês

10.1080/1351847x.2010.543829

1466-4364

Mika Vaihekoski,

Banking stability, regulation, efficiency

Abstract This paper reviews the first 30 years of finance research and education history in Finland from the publication of the first financial dissertation in 1977. It was also the year when finance was first offered as a major subject in Finland, among the first ones in the Nordic countries. This review shows how Finnish financial education and research have developed from a very humble beginning to an internationally acclaimed one. This development can be attributed to a number of talented and hard-working individuals but also to the decision to collaborate among the Finnish universities to overcome some of the problems faced by a small country. Keywords: financial educationresearchgraduate schoolFinlandhistoryprofessorsdissertation JEL Classifications : A23B25N34 Acknowledgements I am indebted to two anonymous reviewers for their comments and the following persons for interviews that provided me with the necessary information to write this article as well as for their comments: Matti Keloharju, Antti Korhonen, Johan Knif, Mikko Leppämäki, Eva Liljeblom, Anders Löflund, Minna Martikainen, Kim Nummelin, Jukka Perttunen, Timo Salmi, and Paavo Yli-Olli. This paper was partly written while I was visiting the Bank of Finland in early 2008. I gratefully acknowledge their support. I am especially thankful for comments from Esa Jokivuolle, Tuomas Takalo, and Jouko Vilmunen. All remaining errors are mine. Notes Partial reviews of the historical development in the USA can be found, for example, in Whitley Citation(1986), Brealey and Edwards Citation(1991), Bernstein Citation(1993), Lehmann Citation(2005), Khurana Citation(2007), and Van Overtveldt Citation(2008). Näsi and Näsi Citation(1997) and Ylä-Liedenpohja Citation(2006) provide historical reviews of the Finnish development taking place in accounting and in economics, respectively, as well as in overall business education. I also made the decision to review only the official appointments of the (associate) professors. In many cases, a person worked as an acting professor before being tenured. I did not make a difference between 5-year appointments or tenures, as both require external peer review and are entitled to use the professor's title according to The Finnish Union of University Professors. Note also that the Finnish Ministry of Education made a decision to abolish all associate professor positions in the late 1990s. Those who were tenured associate professors were given full professorship during 1998–2001 depending on the university. A more complete review of professors' work histories can be found from Ellonen Citation(2008). A complete list of Finnish doctoral dissertations in finance can be found from Vaihekoski Citation(2008). Finland has two official languages: Finnish and Swedish. The Swedish-speaking population represents approximately 6% of the population. Since 1 January 2010, the HSE became part of Aalto University and now operates with the new name of Aalto University School of Economics. Dissertations by Eero Artto in 1968 and Jouko Ylä-Liedenpohja in 1976 from the HSE and Reino Majala in 1975 from the Turku School of Economics can also be said to deal with financial issues, but they do not do so to the same degree as that by Korhonen. To value this achievement, we have to remember that financial research was very scarce in Europe at that time. As an example, there was some research activity in Norway by Jan Mossin, who had returned from the USA to Norway in 1968. Mossin is often contributed as being one of the researchers who independently derived the Capital Asset Pricing Model (CAPM). Korhonen remembers seeing many of today's well-known professors in the lectures he attended. In practice, the department offering the programme was unofficially referred to as the Department of Finance as it did not offer any other programmes (majors). Officially, the name was changed several years later. Note that in most cases Finnish researchers have actually received a DSc degree in Economics. In this paper, the PhD degree is used for simplicity. Shortened by the author. Wahlroos earned his PhD in economics in 1979. One should also mention Professor Pentti Kouri from the University of Helsinki, even though his background is in economics. His article (1982) is still a frequently cited paper in its field, and, in general, one can say that he made a lasting impact on the research. As an anecdote related to Kouri, one cannot pass by the extraordinary period in the early 1990s when he became deeply involved in the Finnish financial markets. Kouri wrote an interesting book titled Owner of Finland, where he reviews the colourful events taking place in Finland. During that time, he arguably owned, among other things, the majority of Nokia Corporation. One reason for the lack of international publications can be attributed to the somewhat negative attitude towards international publications championed by some professors. The first to publish in international journals in accounting were Timo Salmi and Eero Artto, both independently of each other in 1980. Following their example, researchers slowly started to aim for international publications. One also has to remember that 1980s were also a time of many clashes among Finnish professors in terms of the correct research methodology and proper research questions. Markku Kallio (professor of management science at HSE) acted as the academic director of the SYP programme. Professors Seppo Honkapohja from the University of Helsinki, Tom Berglund from Hanken, and Paavo Yli-Olli from the University of Vaasa formed the academic board of the KOP programme. Yli-Olli acted as the first chairman of the board. Wahlroos has continued his career in the banking sector while retaining close connections to the academic world. In fact, the KOP programme was close to not being started at all, as Finland was hit by the crisis in the banking sector in the early 1990s. However, the funding for the programme had already been sent to the foundation that was responsible for the programme; as a result, the programme could be organised. There were even plans for a third programme financed by Postipankki Oy. However, the programme never materialised. For example, Professors Ray Ball, Nai-fu Chen, Robert Jarrow, Robert H. Litzenberger, Stephen A. Ross, Campbell Harvey, and Khrisna Palepu gave lectures in the programmes, just to name a few. The visitors sometimes had various reasons for their visits. Some invited speakers flat-out said that their normal fees could not be afforded but that they still wanted to come, as they were curious to visit Finland. For example, Anders Löflund, Matti Keloharju, Krister Rindell, Teppo Martikainen, and Kenneth Högholm, to name a few participants in the SYP programme, and Vesa Puttonen in the KOP programme, were all later named as professors. Kasanen had already earned a PhD from the Turku School of Economics and Business Administration 4 years earlier. He was named an associate professor of economics at the University of Oulu (1987) and 2 years later an associate professor of accounting and computer application at the HSE (1989). Initially, there was some disagreement over whether financial research and teaching should take place in the accounting or in the economics department, as they both can claim close ties with finance. Ultimately, even though finance as a major was put together with accounting, part of the financial research activity at the HSE has also taken place at the department of economics and also within the faculty of quantitative methods of economics and management science. One has to remember that in Finland, it is common for professorships to be announced as open for competition among all qualifying applicants. In many cases, the competition between the applicants was fierce, especially in the 1970s and 1980s, as the positions were tenured and very scarce. In the 1990s, universities began to appoint an increasing number of professors for fixed terms (typically for 5 years) without open competition but subject to an external review of the qualifications. Again one has to remember that the idea of working together was not much short of revolutionary even though it is now commonplace. For example, back then, the street between Hanken and HSE was known as the 'widest one in Finland'. A total of 8 students out of the 14 graduated as doctors. They were Benny Jern, Juha-Pekka Kallunki, Janne Lehtinen, Minna Martikainen, Mervi Niskanen, Timo Rothovius, Hannu Schadéwitz, and Janne Viitanen. In addition, Antti Hakkarainen, Timo Ihamuotila, and Miikka Taurén graduated as licentiates of science. Taurén later earned a doctorate from Indiana University. Jussi Keppo did not graduate from this graduate school, but he later got a PhD from the Helsinki University of Technology (and has continued his career in the USA). Many of the graduates have stayed in academia, but several have successfully pursued professional careers. Author's translation: Foundation for promoting the Finnish securities market. A number of students left Finland after high school and did their master's degrees at Swedish universities. Korkeamäki and Moore's (2004) paper was also nominated for the 2004 Brattle Prize for the best corporate finance paper. Bengt Holmström was also born in Finland, and he has published two articles in the Journal of Finance (Baron and Holmström Citation1980; Holmström and Tirole Citation2001), but he got both his MSc and PhD degrees from Stanford. Patrik Sandås got his BSc from Hanken and PhD later from Carnegie Mellon University in 1998. He has published two articles in the Review of Financial Studies (Sandås Citation2001; Foucault, Röell, and Sandås Citation2003) and one in the Journal of Finance (Hollifield, Miller, and Sandås Citation2006). Similarly, Risto Karjalainen (MSc from Helsinki University of Technology) has published an article in the Journal of Financial Economics (Allen and Karjalainen Citation1999). Esa Jokivuolle (MSc from the University of Helsinki and PhD from the University of Illinois at Urbana-Champaign) was the first Finn to publish an article in the Journal of Financial Quantitative Analysis (Jokivuolle Citation1995). This is with the exception of Monica Ahlstedt from the Bank of Finland, who earned her PhD in 1998. Again, the timing was no accident, as Hanken's academic promotion ceremony (commencement) was to take place in 1999. In the ceremony, the first (and so far the only) Finnish honorary doctor in finance was awarded to Professor Campbell R. Harvey. The 2001a article ultimately won the title of Distinguished Paper, winning the Breeden Prize. As an anecdote, the paper was first accepted as a shorter paper, and, as a result, the authors were required to shorten it considerably. However, the editor of the journal changed, and the new editor upgraded the paper to a normal one. However, the length of the article could not be increased, and as Keloharju itself puts it: 'In the end, a lot of interesting results had to be left out of the paper'. This article was also nominated for the Breeden Prize, but this time it was not awarded. During 2000 and 2006, close to 40 new PhDs in finance graduated; i.e. on average, almost six new PhDs graduated every year (there are more if financial dissertations from other, closely related disciplines are included). A somewhat similar cooperation takes place in Switzerland within the Swiss Finance Institute initiative. The total number of students choosing finance as their major in the Finnish universities has during the last years been close to 230, approximately half of that 10 years earlier. Every year, Hanken (Helsinki and Vaasa campus) accepts approximately 65–70 students, HSE accepts 60–65 students, the University of Vaasa accepts 35–40 students, the University of Oulu accepts 30 students, and LUT accepts 25–30 students. This is a very conservative estimate, as many students at other universities majoring in economics or accounting and other subjects have very similar orientations. One can, for example, compare the total number of professors in finance in Finland at the end of 2006 (approximately 20) to the number of associate and full professors that Harvard alone list on their website (http://www.hbs.edu/units/finance/) as members of their finance unit in December 2007 (26).