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Do (successful) stock exchanges support or hinder institutions in transition economies?

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  • Christopher A. Hartwell

Abstract

A stock exchange and the presence of functioning equity markets are part and parcel of an advanced market-based financial system. Previous research has also established that equity markets function more efficiently in the presence of supporting institutions such as property rights and rule of law. But how do these two aspects of the institutional environment interact? That is, does the performance of a stock exchange support the development of property rights, or can it actually hinder it? Examining monthly data for 21 transition economies over a shifting monthly window from 1989 to 2012, and using a fixed-effects specification with Driscoll-Kraay standard errors, I find support for the existence of an inverted U-shaped relationship between property rights and stock market performance. While a well-functioning stock market may help reinforce property rights through demonstration effects, a stock market that has become "too successful" may entrench interests and lead to property rights-eroding policies.

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  • Christopher A. Hartwell, 2014. "Do (successful) stock exchanges support or hinder institutions in transition economies?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-18, December.
    • Handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.946620
    DOI: 10.1080/23322039.2014.946620
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    Cited by:

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    3. Christopher Hartwell, 2015. "Après le déluge: Institutions, the Global Financial Crisis, and Bank Profitability in Transition," Open Economies Review, Springer, vol. 26(3), pages 497-524, July.
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    5. Hartwell, Christopher A., 2018. "The impact of institutional volatility on financial volatility in transition economies," Journal of Comparative Economics, Elsevier, vol. 46(2), pages 598-615.
    6. Christopher A. Hartwell & Anna P. Malinowska, 2018. "Firm-Level and Institutional Determinants of Corporate Capital Structure in Poland: New Evidence from the Warsaw Stock Exchange," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 68(2), pages 120-143, April.

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