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Property rights and the stock market-growth nexus

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  • Ng, Adam
  • Dewandaru, Ginanjar
  • Ibrahim, Mansor H.

Abstract

Using threshold estimation techniques, this study examines whether the growth effect of stock market development differs according to the different levels of property rights and minority shareholders protection in a cross-section of 85 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on growth is positive and significant only in jurisdictions where there is high level of property rights protection. Similar effect is discerned in the case of strong minority shareholders protection. Using the market size as a measure of stock market development, the paper also documents a positive growth effect of market size when property rights and minority shareholders protection are strong. However, there is mixed evidence in the low to medium degrees of protection. Further analyses using other broader governance indicators as threshold variables and instrumental variable threshold regressions reaffirm the main findings. The study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which institutional quality can positively shape the impact of stock market on economic growth.

Suggested Citation

  • Ng, Adam & Dewandaru, Ginanjar & Ibrahim, Mansor H., 2015. "Property rights and the stock market-growth nexus," The North American Journal of Economics and Finance, Elsevier, vol. 32(C), pages 48-63.
    • Handle: RePEc:eee:ecofin:v:32:y:2015:i:c:p:48-63
    DOI: 10.1016/j.najef.2015.01.004
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    More about this item

    Keywords

    Property rights; Minority shareholders; Stock market development; Growth; Thresholds;
    All these keywords.

    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • P14 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Property Rights

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