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Promoting access to primary equity markets : a legal and regulatory approach

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  • Friedman, Felice B.
  • Grose, Claire
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    Abstract

    This paper examines legal and regulatory measures that can be taken to promote access to the primary market in emerging market economies. While capital market development depends on many factors including, primarily, a favorable macroeconomic environment, an appropriately designed and effective legal and regulatory framework can help to encourage market growth and to increase access to finance for all companies, including small- and medium-sized enterprises. In this paper we identify the basic necessities that underpin a regulatory regime that is cost effective and strikes an appropriate balance between, on the one hand, laws and regulations that may be too restrictive to achieve a supply of capital and, on the other, those that may be so relaxed that investors feel that there is an unacceptable level of risk and do not care to venture into the market. We explore the legal foundations for the successful operation of a primary market for securities and identify disclosure and effective monitoring and enforcement as essential elements of legal protection. We then examine different legal and regulatory approaches for improving access to finance. We discuss measures that can be used by traditional stock exchanges to attract smaller enterprises to their lists as well as recent initiatives to create second boards or divide the main board into different market segments. We also discuss different mechanisms for companies to raise funds outside of a formal stock market listing, including private placements and private equity. Finally, we propose some recommendations for a simple legal and regulatory framework that will help promote access to primary equity markets, via both the traditional exchange as well as other alternatives.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3892.

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    Date of creation: 01 Apr 2006
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    Handle: RePEc:wbk:wbrwps:3892

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    Keywords: Markets and Market Access; Economic Theory&Research; Financial Intermediation; CorporateLaw; Investment and Investment Climate;

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    References

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    1. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
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    12. Sylla, Richard, 1995. "The rise of securities markets : what can government do?," Policy Research Working Paper Series 1539, The World Bank.
    13. Klapper, Leora F. & Love, Inessa, 2002. "Corporate governance, investor protection, and performance in emerging markets," Policy Research Working Paper Series 2818, The World Bank.
    14. Augusto de la Torre & Sergio Schmukler, 2005. "Whither Latin American Capital Markets?," World Bank Other Operational Studies 10336, The World Bank.
    15. Ladekarl, Jeppe & Zervos, Sara, 2004. "Housekeeping and plumbing - the investability of emerging markets," Policy Research Working Paper Series 3229, The World Bank.
    16. Bushee, Brian J. & Leuz, Christian, 2005. "Economic consequences of SEC disclosure regulation: evidence from the OTC bulletin board," Journal of Accounting and Economics, Elsevier, vol. 39(2), pages 233-264, June.
    17. Leuz, Christian & Triantis, Alexander & Yue Wang, Tracy, 2008. "Why do firms go dark? Causes and economic consequences of voluntary SEC deregistrations," Journal of Accounting and Economics, Elsevier, vol. 45(2-3), pages 181-208, August.
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    Cited by:
    1. Endo, Tadashi, 2008. "Broadening the offering choice of corporate bonds in emerging markets : cost-effective access to debt capital," Policy Research Working Paper Series 4655, The World Bank.

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