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Are regulations the answer for emerging stock markets? Evidence from the Czech Republic and Poland


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  • Stringham, Edward
  • Boettke, Peter
  • Clark, J.R.


Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis [Neal, L., & Davis, L. (2005). The evolution of the rules and regulations of the first emerging markets: The London, New York, and Paris stock exchanges, 1792-1914. Quarterly Review of Economics and Finance, 45, 296-311] and Stringham [Stringham, E. (2003). The extralegal development of securities trading in seventeenth century Amsterdam. Quarterly Review of Economics and Finance, 43, 321-344] suggests that securities markets have successfully developed with little government oversight, numerous authors [including Black, B. (2001). The legal and institutional preconditions for strong securities markets. University of California Law Angeles Law Review, 48, 781-855; Coffee, J. (1999). Privatization and corporate governance: The lessons from securities market failure. Journal of Corporation Law, 25, 1-39; Frye, T. (2000). Brokers and bureaucrats: Building market institutions in Russia. Ann Arbor: University of Michigan Press; Glaeser, E., Johnson, S., & Shleifer, A. (2001). Coase versus the Coasians. Quarterly Journal of Economics, 116, 853-899; Mlcoch, L. (2000). Restructuring of property rights: An institutional view. In L. Mlcoch et al. (Eds.), Economic and Social Changes in Czech Society After 1989. Prague: The Karolinum Press; Pistor, K. (2001). Law as a determinant for equity market development - the experience of transition economies. In Peter Murrell (Ed.), The Value of Law in Transition Economies (pp. 249-287). Ann Arbor: Michigan University Press; Stiglitz, J. (1999). Whither reform. Ten years of the transition. Keynote Address, Annual Bank Conference on Development Economics, Washington, DC, April 28-30, 1999; Zhang, X. (2006). Financial market governance in developing countries: Getting the political underpinnings right. Journal of Developing Societies, 2, 169-196] argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.

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Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

Volume (Year): 48 (2008)
Issue (Month): 3 (August)
Pages: 541-566

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Handle: RePEc:eee:quaeco:v:48:y:2008:i:3:p:541-566

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  1. Edward Glaeser & Simon Johnson & Andrei Shleifer, 2001. "Coase Versus The Coasians," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 853-899, August.
  2. Julia Leopold, 2006. "The Role of International Organisations in Central and Eastern Europe," Transition Studies Review, Springer, vol. 13(2), pages 311-316, 07.
  3. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.
  4. Weiss Andrew & Nikitin Georgiy A, 2004. "Foreign Portfolio Investment Improves Performance: Evidence from the Czech Republic," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-49, June.
  5. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2005. "Liberalization, corporate governance and the performance of privatized firms in developing countries," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 767-790, October.
  6. Makhija, Anil K & Spiro, Michael, 2000. "Ownership Structure as a Determinant of Firm Value: Evidence from Newly Privatized Czech Firms," The Financial Review, Eastern Finance Association, vol. 35(3), pages 1-31, August.
  7. Aivazian, Varouj A. & Ge, Ying & Qiu, Jiaping, 2005. "Can corporatization improve the performance of state-owned enterprises even without privatization?," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 791-808, October.
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Cited by:
  1. Stringham, Edward Peter, 2011. "Embracing morals in economics: The role of internal moral constraints in a market economy," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 98-109, April.
  2. Cebula, Richard & Foley, Maggie, 2011. "A Panel Data Study of the Effects of Economic Freedom, Regulatory Quality, and Taxation on the Growth Rate of Per Capita Real GDP," MPRA Paper 54703, University Library of Munich, Germany.
  3. Gomber, Peter & Jäger, Benedikt, 2014. "MiFID: Eine systematische Analyse der Zielerreichung," SAFE White Paper Series 14, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  4. Tereza Šímová & Josef Šíma, 2012. "In Search Of Empirical Content – The Austrian Way To Go Beyond Pure Theory," Romanian Economic Business Review, Romanian-American University, vol. 7(1), pages 50-59, March.
  5. Cebula, Richard & Clark, Jeff, 2014. "Impact of Economic Freedom, Regulatory Quality, and Taxation on the Per Capita Real Income: An Analysis for OECD Nations and Non-G8 OECD Nations," MPRA Paper 56605, University Library of Munich, Germany.
  6. Solomon Stein & Virgil Storr, 2013. "The difficulty of applying the economics of time and ignorance," The Review of Austrian Economics, Springer, vol. 26(1), pages 27-37, March.


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