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Security market regulation: antecedents for capital market confidence in frontier markets

Author

Listed:
  • Erick Rading Outa
  • Nelson Maina Waweru
  • Peterson Kitakogelu Ozili

Abstract

Purpose - The purpose of this study is to examine the capital market effects of corporate governance (CG) practices of a “comply or explain” environment on stock market liquidity in a frontier market. Design/methodology/approach - Using secondary data from Nairobi Securities Exchange, the liquidity position is analyzed using panel data random effects regression against CG guidelines. Findings - The results show a negative and significant relationship between CG compliance and stock market liquidity, suggesting that regulated CG practices improve market liquidity in Kenya. The results are remarkably robust to different measures of liquidity and supports agency and signaling theory. Practical implications - The authors provide evidence to show that security regulation improves stock market liquidity in a frontier market whose characteristics are thought not to favor regulation. Therefore, regulators and stakeholders could be motivated by the benefits of regulation, and this could lead to renewed effort to improve CG compliance. Originality value - The findings show that security market regulation through CG guidelines can improve stock market liquidity in frontier markets. This offers regulators and policymakers a strong motivation to enhance security regulation to improve capital market confidence.

Suggested Citation

  • Erick Rading Outa & Nelson Maina Waweru & Peterson Kitakogelu Ozili, 2018. "Security market regulation: antecedents for capital market confidence in frontier markets," Accounting Research Journal, Emerald Group Publishing Limited, vol. 31(2), pages 157-173, July.
    • Handle: RePEc:eme:arjpps:arj-10-2015-0130
    DOI: 10.1108/ARJ-10-2015-0130
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    More about this item

    Keywords

    Kenya; Stock market liquidity; Corporate governance practices; Security market regulation; G18; G34; G38; M41;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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