Simplice A, Asongu (2012): Democracy and Stock Market Performance in African Countries.
Preview |
PDF
MPRA_paper_38168.pdf Download (236kB) | Preview |
Abstract
Purpose – This paper assesses the incidence of political institutions on stock market performance dynamics in Africa.
Design/methodology/approach – The estimation technique used is a Two-Stage-Least Squares Instrumental Variable methodology. Channels of democracy, polity and autocracy are instrumented with legal-origins, religious-legacies, income-levels and press-freedom qualities to account for stock market performance dynamics of capitalization, value traded, turnover and number of listed companies. To ensure robustness of the analysis, the following checks are carried out: (1) usage of alternative indicators of political institutions; (2) employment of two distinct interchangeable sets of moment conditions that engender every category of the instruments; (3) usage of alternative indicators of stock market performance; (4) account for the concern of endogeneity; (5) usage of Principal Component Analysis(PCA) to reduce the dimensions of stock market dynamics and political indicators and then check for further robustness of findings in the regressions from resulting indexes.
Findings – Findings broadly demonstrate that democracy improves investigated stock market performance dynamics.
Practical implications – As a policy recommendation, the role of sound political institutions is crucial for financial development in Africa. Democracies have important effects on both the degree of competition for public office and the quality of public offices that favor stock market development in the African continent.
Originality/value – To the best of our knowledge this is the first paper to assess the incidence of democracy on stock market performance in an exclusive African context. Political strife has plagued many African countries and continue to pose a significant threat to financial market development.
Item Type: | MPRA Paper |
---|---|
Original Title: | Democracy and Stock Market Performance in African Countries |
Language: | English |
Keywords: | Financial Markets; Government Policy; Political Economy; Development |
Subjects: | P - Economic Systems > P4 - Other Economic Systems > P43 - Public Economics ; Financial Economics G - Financial Economics > G1 - General Financial Markets > G18 - Government Policy and Regulation G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation G - Financial Economics > G1 - General Financial Markets > G10 - General P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy |
Item ID: | 38168 |
Depositing User: | Simplice Asongu |
Date Deposited: | 17 Apr 2012 18:56 |
Last Modified: | 30 Sep 2019 14:23 |
References: | Agbor, J.A., (2011). “How Does Colonial Origin Matter for Economic Performance in Sub-Saharan Africa”, World Institute for Development Economics Research, Working Paper, No. 2011/27. Aggarwal, R., Klapper, R., & Wysocki, P.D., (2002). Portfolio preferences of foreign institutional investors. MIT Sloan Working Paper 4328-03, Cambridge, MA. Alagidede, P.,(2008). “African Stock Market Integration: Implications for Portfolio Diversification and International Risk Sharing”, Proceedings of the African Economic Conferences 2008. Asongu, S. A.,(2011a). “New financial intermediary development indicators for developing countries”, MPRA Paper No. 30921. Asongu, S. A., (2011b). “Law, finance, economic growth and welfare: why does legal origin matter?”, MPRA Paper No. 33868. Asongu, S. A.,(2011c). “Law, finance and investment: does legal origin matter?”, MPRA Paper No. 34698. Asongu, S. A., (2011d). “Law and investment in Africa”, MPRA Paper No.34700. Asongu, S. A.,(2011e). “Law and finance in Africa”, MPRA Paper No. 34080. Asongu, S. A., (2011f). “Why do French civil-law countries have higher levels of financial efficiency?”, MPRA Paper No.33950. Asongu, S. A., (2012a). “African Stock Market Performance dynamics: A Multidimensional Convergence Assessment”, MPRA Paper No. 36055. Asongu, S. A., (2012b). “Real and Monetary Policy Convergence: EMU Crisis to the CFA Zone”, MPRA Paper No. 36051. Asongu, S. A., (2012c). “Are proposed African Monetary Unions Optimal Currency Areas? Real and Monetary Policy Convergence Analysis”, MPRA Paper No. 36056. Asongu, S. A.,(2012d). “African Financial Development Dynamics: Big Time Convergence”, MPRA Paper No. 36053. Asutey, M.,(2007). “A political economy approach to Islamic economics: systemic understanding for an alternative economic system”, Kyoto Bulletin of Islamic Area Studies, 1(2), pp.3-18. Bailey, M. J., & Rubin, P.H.,(1994). “A Positive Theory of Legal Change”, International Review of Law and Economics, 14, pp.467-477. Bartels, F. L., Alladina, S.N., & Lederer, S., (2009).“Foreign Direct Investment in Sub-Saharan Africa: Motivating Factors and Policy Issues”, Journal of African Business, 10(2), 141-162. Beck, T., Demirgüç-Kunt, A., & Levine, R.,(1999). “A New Database on Financial Development and Structure”, Financial Sector Discussion Paper No. 2. Beck, T., Demirgüç-Kunt, A., & Levine, R.,(2003). “Law and finance: why does legal origin matter?”, Journal of Comparative Economics, 31, pp. 653-675. Beck., T., & Levine, R.,(2005). “Legal institutions and financial development”, in “Handbook of New Institutional Economics”, Ménard & M. Shirley(eds.), Netherlands, pp.251-278. Beine, M., Cosma, A., & Vermeulen, R.,(2010).“The dark side of global integration: increasing tail dependence“, Journal of Banking and Finance, 34, pp. 184-192. Bekaert, G., & Harvey, C., (1995). “Time-varying world market integration”, Journal of Finance, 50, pp. 403–444. Bhattacharya, U., & Daouk, H., (1999). “The world price of insider-trading”, Journal of Finance, 57, pp. 75-108. Biekpe, N.,(2004). “Financing Small Businesses in Sub-Saharan Africa: Review of Some Key Credit Lending Models and Impact of Venture Capital Provision”, Journal of African Business, 5(1), 29-44. Bossone, B., & Honohan, P.,(2003). “Coping with a Small Financial System. Policy Issues for Africa”, Journal of African Business, 4(2), pp.5-20. Cerny, P., G., (1999). “Globalization and the Erosion of Democracy”, European Journal of Political Research ,36(1), pp. 1–26. Chen, G-M., Firth, M., & Rui, O.M.,(2002).“Stock market linkages: evidence from Latin America”, Journal of Banking and Finance, 26, pp.1113-1141. Clark, R. A.,(2003). “African Securities Market Designs”, Journal of African Business, 4(3), pp.83-102. Coase, R.,(1960). “The Problem of Social Cost”, Journal of Law and Economics, 3, pp.1-44. Darley, W. K.,(2012), “Increasing Sub-Saharan Africa's Share of Foreign Direct Investment: Public Policy Challenges, Strategies, and Implications”, Journal of African Business, 13(1), pp.62-69. Easterbrook, & Fischel, D. R., (1991). The Economic Structure of Corporate Law. Cambridge, MA: Harvard University Press. Friedman, T., L., (1999). The Lexus and the Olive Tree. New York: Anchor Books. Goldsmith, A., A.,(2003). “Perceptions of Governance in Africa. A Survey of Business and Government Leaders”, Journal of African Business, 4(3), pp. 25-53. Gray, K. R., & Bythewoo, C., (2001). “Emerging Securities Exchanges in Africa. International Characteristics of the Nairobi Stock Exchange”, Journal of African Business, 2(3), pp.65-73. Grubel, H., (1968). “Internationally diversified portfolio: welfare gains in capital flows”, American Economic Review, 58, pp. 89-94. Guo-Ping, L.,(2008). “The Press Freedom and the Efficiency of Capital Markets”, Journal of Shanghai Lixin, University of Commerce. Hail, L., & Leuz, C., (2003). “International difference in the cost of equity capital: do legal institutions and securities regulation matter?”, ECGI-Law Working Paper 15/2003, Brussels. Hart, O.,(1995). Firms, Contracts and Financial Structure. London: Oxford University Press. Hearn, B., Piesse, J., & Strange, R., (2011). “The role of the stock market in the provision of Islamic development finance: Evidence from Sudan”, Emerging Markets Review, 12, pp.338-353. Helleiner, E., (1994). “The World of Money: The Political Economy of International Capital Mobility”, Policy Sciences, 27(4), pp. 295-298. Himmelberg, C, Hubbard, G., & Love, I., (2004). “Investor protection ownership and the cost of capital”, World Bank Policy Research Working Paper 2834, Washington D.C. Hooper, V., Sim, A. B., & Uppal, A.,(2009). “Governance and stock market performance”, Economic Systems, 33, pp.93-116. IMF (2005, June). “The IMF Approach to Promoting Good Governance and Combating Corruption-A Guide”, International Monetary Fund. IMF (2006, April). “Market Development and Issues”, IMF Global Financial Stability Report, http://www.imf.org/external/pubs/ft/GFSR/2006/01/index.htm. Iqbal, Z.,(1997, June). “Islamic financial systems”, Finance & Development, pp.42-45. Jensen, M.C., & Meckling, W.H., (1976). “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, 3, pp. 305-360. Johnson, S., & Shleifer, A., (1999). “Coase vs the Coasians”, NBER Working Paper 7447, Cambridge, M.A. Kim, S. J., Moshirian, F., & Wu, E., (2005). Dynamic stock market integration driven by the European Monetary Union: an empirical analysis”, Journal of Banking and Finance, 29, pp. 2475-2502. Kolstad, I., & Wiig, A., (2011). “Better the Devil You Know? Chinese Foreign Direct Investment in Africa”, Journal of African Business, 12(2), 31-50. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W., (1997). “Legal Determinants of External Finance”, Journal of Finance, 52, pp. 1131-1150. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R.W., (1998). “Law and finance”, Journal of Political Economy, 106, pp.1113-1155. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R., (2000a). “Investor Protection and Corporate Governance”, Journal of Financial Economics, 58, pp.3-27. La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R., (2000b). “Agency problems and dividend policies around the world”, Journal of Finance, pp. 55, 1–33. Levy, H., & Sarnat, M., (1970). “International diversification of investment portfolios”, American Economic Review, 60, pp.668-675. Lombardo, D., (2000). “Is There a Cost to Poor Institutions?”, SIEPR Discussion Paper No. 00-19. Lombardo, D., & Pagano, M., (2002). “Law and equity markets: a simple model”, CSEF Discussion Paper 25, Naples. Modigliani, F., & Miller, M.,(1958). “The Cost of Capital, Corporation Finance and the Theory of Investment”, American Economic Review, 48, pp.261-297. Mosley, L., (2008). “Taking Stock Seriously: Equity-Market Performance, Government Policy and Financial Globalization”. International Studies Quarterly, 52, pp.405-425. Mutenheri, E., & Green, C. J.,(2003). “Financial Reform and Financing Decisions of Listed Firms in Zimbabwe”, Journal of African Business, 4(2), pp.155-170. Ngugi, R. W., Murinde, V., 1 Green, & C. J., (2003). “How Have the Emerging Stock Exchanges in Africa Responded to Market Reforms?”, Journal of African Business, 4(2), pp.89-127. Obstfeld, M., & Taylor, A.M., (2004). Global Capital Markets: Integration, Crisis, and Growth. Cambridge: Cambridge University Press. Oscarsson, H., (2008), “Media and Quality of Government: A research overview”, Quality of Government Working Paper Series, 2008/12. Osinubi, T. S., & Amaghionveodiwe, L. A.,(2003). “Stock Market Development and Long-Run Growth in Nigeria”, Journal of African Business, 4(3), pp.103-129. Posner, R. A.,(1973). Economic Analysis of the Law. Boston, MA: Little-Brown. Priest, G. L.,(1977). “The Common Law Process and the Selection of Efficient Rules”, Journal of Legal Studies, 6, pp.65-82. Pryor, F. L.,(2007). “The economic impact of Islam on developing countries”, World Development, 35(11), pp.1815-1835. Quartey, P.,(2003). “Financing Small and Medium Enterprises (SMEs) in Ghana”, Journal of African Business, 4(1), pp.37-55. Rajan, R. G., & Zingales, L.,(2003). “The Great Reversals: The Politics of Financial Development in the 20th Century”, Journal of Financial Economics, 69, pp.5-50. Rolfe, R. J., & Woodward, D. P.,(2004). “Attracting foreign investment through privatization: the Zambian experience”, Journal of African Business, 5(1), pp.5-27. Rosenberg, N., & Birdzell, L., (1986). How The West Grew Rich: The Economic Transformation of The Industrial World. Basic Books, New York. Rubin, P. H.,(1977). “Why Is the Common Law Efficient?” Journal of Legal Studies, 6, pp. 51-64. Rubin, P. H., (1982). “Common Law and Statute Law”, Journal of Legal Studies, 11, pp.205-233. Shleifer, A., & Wolfenson, D., (2002). Investor protection and equity market. Harvard Institute of Economic Research Paper, 1906, Cambridge, M.A. Stigler, G. J.,(1964). “Public Regulation of the Securities Market”, Journal of Business, 37, pp.117-142. Strange, S., (1996), The Retreat of the State: The Diffusion of Power in the World Economy. New York:Cambridge University Press. Stulz, R., (1999), “Globalization, corporate finance, and the cost of capital”, Journal of Applied Corporate Finance, 12, pp. 8–25. Stulz, R., M., & Williamson, R., (2003). “Culture, Openness and Finance”, Journal of Financial Economics, 70, pp. 313-349. Toumi, K.,(2011). “The Role of the Investment Climate and Tax Incentives in the Foreign Direct Investment Decision: Evidence from South Africa”, Journal of African Business, 12(1), pp.133-147. Umutlu, M., Akdeniz, L., & Altag-Salih, A.,(2010).“The degree of financial liberalisation and aggregated stock-return volatility in emerging markets”, Journal of Banking and Finance, 34(3), pp.509-521. Vaidya, S., (2005), "Corruption in the media's gaze", European Journal of Political Economy, 21, pp.667-87. Von Furstenberg, G. M., & Jeon, B.N.,(1989).“International stock price movements: links and messages”, Brookings Papers on Economic Activity, 1, pp.125-179. Yang, B.,(2011). “Does democracy foster financial development? An empirical analysis”, Economic Letters, 112, pp.262-265. Yu, I-W., Fung, K-P., & Tam, C-S.,(2010). “Assessing the financial market integration in Asia-equity markets”, Journal of Banking and Finance, 34, pp.2874-2885. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/38168 |