Nordic Finance and the Good Society Newsletter March 2025

Dear reader

Welcome to our new updated version of the Nordic Finance and the Good Society Newsletter. We hope you will enjoy the updates and insights. Happy reading!

EDITORIAL: The European financial sector is at a cross road. Can the sector trust American players in the future?

The current geopolitical rebalancing will undoubtedly have a major impact on the European financial sector once the dust settles. Over the last couple of decades, American players have gained leading positions in payment and credit card systems, digital platforms, asset management industry, and investment banking.

The financial sector is - and should be - based on trust, openness, strong corporate governance principles and the rule of law. However, what we are currently witnessing in the US raises some fundamental questions about whether these guiding principles will prevail in the future. Can European savers and institutional investors continue to trust that American players in the financial sector will act in their best interest? And will financial systems operated by US providers safeguard data independently? Or will these European financial assets and data become victims in trade and tax disputes with long term consequences?

While such concerns would have been unthinkable in the past, will the independence of the US Reserve bank prevail, or will it be undermined by political forces, as we have seen in countries like Turkey. European investors, regulators, and boards will have to reflect deeply on these political risks and challenges - it will not be for the faint of heart.

Lars Ohnemus, Project Leader of Nordic Finance and the Good Society

OP-ED: In Børsen - "Kan finanssektoren stole på amerikanske aktører i fremtiden?”

Lars Ohnemus, March 19 2025

Read the op-ed by Lars Ohnemus on the financial sector's dependence on American actors. The article raises the question: Can we trust them?
The op-ed is in Danish and can be found in Børsen.

Link to Børsen

RESEARCH: Economic Policy Uncertainty Destroys Firm Value – But Some Firms Cope Better

Abstract

In recent years, economic policy uncertainty (EPU) has been on the rise – fueled by political deadlock, shifting economic strategies, and sudden policy changes. However, when governments struggle to agree on regulations, tax policies, or trade rules, businesses pay the price.

A new study by Markus Fütterer, Marc Steffen Rapp, and Ignacio Requejo confirms that EPU consistently erodes firm value. Analyzing 1,600 listed companies across nine European countries, the researchers find that when EPU increases, stock prices suffer, investments dry up, and firms become more vulnerable. Those most at risk are companies with limited flexibility—such as firms heavily dependent on domestic markets or with rigid financial structures. However, not all firms are equally affected.

Key Findings

Resilience of Founding Family Firms (FFFs): Unlike non-family firms, FFFs show stronger resilience to economic policy uncertainty (EPU), maintaining stable investment strategies instead of retreating during uncertain periods.
Positive Correlation Between EPU and FFF Premium: The study finds that while EPU negatively affects firm value in general, FFFs experience a mitigated impact, leading to a positive relationship between EPU and the FFF premium.
Domestic Firms Are More Affected: The mitigating effect of EPU on FFFs is stronger in firms with lower levels of international assets, suggesting that domestic firms are more influenced by policy uncertainty.
Flexibility and Financial Constraints Matter: The resilience of FFFs is more pronounced in firms with lower real-option intensity and those facing financial constraints, highlighting the role of flexibility in navigating uncertainty.
Long-Term Orientation Provides Stability: The long-term investment approach from a management perspective of FFFs contributes to their stability, reinforcing their role in maintaining economic sector stability during periods of uncertainty.

RESEARCH: Growth Strategies and Welfare Reforms in Denmark. Chapter 3

Abstract

Christian Ibsen and Jette Steen Knudsen’s chapter Growth Strategies and Welfare Reforms in Denmark (forthcoming in Growth Strategies and Welfare Reforms, Oxford University Press, 2025) examines the emergence of the Danish growth strategy since the 1980s.

The authors argue that a high-value export sector, combined with strong domestic demand, fosters the ‘balanced growth model,’ which is sustained by a productive welfare state that enhances human capital, labor market flexibility, and workforce participation. Unlike finance-led economies such as the UK or Sweden, Denmark’s most successful companies are often owned by industrial foundations, which take a “patient capital” approach, prioritize R&D, and avoid shareholder-maximization strategies. The chapter argues that, unlike in other countries, Denmark’s growth regime perspective and the strategies of its dominant coalitions have remained largely consistent over time.

Key findings

Denmark's Growth Model: Combines high-value exports with internal demand, supported by an active welfare state.
Three Economic Imperatives for Welfare State Reforms: 1) A highly educated workforce, 2) Flexible employment relations, 3) High labor force participation
Flexicurity System: Enables labor market adaptability while ensuring income security. It also allows Danish companies to restructure rapidly to remain competitive in a global marketplace.
Ownership Structure in Denmark: Not dominated by shareholders. Instead, the industrial structure, with industrial foundations, avoids the shareholder-maximization strategy of downsizing workforces and prioritizes R&D.