How Does Governance Help World Stock Market Development?

Tarek Eldomiaty, Rasha Hammam, Yasmeen Said and Alaa Safwat

A chapter in Contemporary Issues in Behavioral Finance, 2019, vol. 101, pp 261-281 from Emerald Group Publishing Limited

Abstract: This chapter offers an empirical examination of the impact of World Governance indicators (WGIs) on stock market development. The understanding is based on the premise of institutional economics that strong institutional governance, in terms of laws and regulations, results in positive developments in financial institutions. The data which covers the years 1996–2016, include all world countries where a stock market operates. The authors use standard statistical tools that include Johansen co-integration test, linearity, normality tests, and regression analysis, together with discriminant analysis as a robustness check. The empirical findings show that (a) a negative association exists between Voice and Accountability and stock market development, (b) a positive association exists between each of Political Stability, Government Effectiveness, Regulatory Quality, Rule of Law and Control of Corruption, and stock market development for most World’s regions stock markets, (c) both Voice and Accountability and Political Stability indicators are the major influential indicators for the stock market development across world stock markets. This chapter offers quantitative evidence about the benefits of strong institutional governance to stock market development. In addition, the chapter offers significant guidelines to policymakers regarding the institutional factors that can be enhanced to promote stock market development.

Keywords: World Governance Indicators; market capitalization; domestic listed firms; panel co-integration; discriminant analysis; B52; D02; P14 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:csefzz:s1569-375920190000101017

DOI: 10.1108/S1569-375920190000101017

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