IDEAS home Printed from https://ideas.repec.org/a/wly/mgtdec/v42y2021i4p998-1021.html
   My bibliography  Save this article

The link between institutional quality, ethical behaviors of firms, and market regulations on stock market developments

Author

Listed:
  • Cemil Kuzey
  • Ali Uyar
  • Amal Hamrouni
  • Merve Kilic
  • Rim Boussaada

Abstract

This study explores the link between institutional quality, ethical behaviors of firms, and market regulations on stock market developments. The dynamic panel regression analysis and moderation analysis with single‐threshold modeling approaches were exploited to test the hypotheses. The results show that overall institutional quality with its six indicators are significant predictors of stock market development taking into account that they have varying influence on different stock market development proxy. Moreover, moderation analysis showed that the ethical behavior of firms and market regulations mostly acts as a substitute and sometimes acts as a complement for institutional quality in stock market development.

Suggested Citation

  • Cemil Kuzey & Ali Uyar & Amal Hamrouni & Merve Kilic & Rim Boussaada, 2021. "The link between institutional quality, ethical behaviors of firms, and market regulations on stock market developments," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 998-1021, June.
    • Handle: RePEc:wly:mgtdec:v:42:y:2021:i:4:p:998-1021
    DOI: 10.1002/mde.3288
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/mde.3288
    Download Restriction: no
    File URL: https://libkey.io/10.1002/mde.3288?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    2. Prabirjit Sarkar & Ajit Singh, 2010. "Law, finance and development: further analyses of longitudinal data," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 34(2), pages 325-346, March.
    3. Paolo Buonanno & Daniel Montolio & Paolo Vanin, 2009. "Does Social Capital Reduce Crime?," Journal of Law and Economics, University of Chicago Press, vol. 52(1), pages 145-170, February.
    4. Pan, Lei & Mishra, Vinod, 2018. "Stock market development and economic growth: Empirical evidence from China," Economic Modelling, Elsevier, vol. 68(C), pages 661-673.
    5. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
    6. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer & Robert Vishny, 2002. "Investor Protection and Corporate Valuation," Journal of Finance, American Finance Association, vol. 57(3), pages 1147-1170, June.
    7. Dreher, Axel & Kotsogiannis, Christos & McCorriston, Steve, 2007. "Corruption around the world: Evidence from a structural model," Journal of Comparative Economics, Elsevier, vol. 35(3), pages 443-466, September.
    8. Ahmet Ekici & Sule Onsel, 2013. "How Ethical Behavior of Firms is Influenced by the Legal and Political Environments: A Bayesian Causal Map Analysis Based on Stages of Development," Journal of Business Ethics, Springer, vol. 115(2), pages 271-290, June.
    9. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July.
    10. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-1150, July.
    11. Jörg Breitung & Samarjit Das, 2005. "Panel unit root tests under cross‐sectional dependence," Statistica Neerlandica, Netherlands Society for Statistics and Operations Research, vol. 59(4), pages 414-433, November.
    12. Azmat Gani & Christopher Ngassam, 2008. "Effect of institutional factors on stock market development in Asia," American Journal of Finance and Accounting, Inderscience Enterprises Ltd, vol. 1(2), pages 103-120.
    13. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, April.
    14. José Antonio Alonso & Carlos Garcimartín, 2013. "The Determinants Of Institutional Quality. More On The Debate," Journal of International Development, John Wiley & Sons, Ltd., vol. 25(2), pages 206-226, March.
    15. Papaioannou, Elias, 2009. "What drives international financial flows? Politics, institutions and other determinants," Journal of Development Economics, Elsevier, vol. 88(2), pages 269-281, March.
    16. John Armour & Simon Deakin & Prabirjit Sarkar & Mathias Siems & Ajit Singh, 2009. "Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(2), pages 343-380, June.
    17. Ahlin, Christian & Pang, Jiaren, 2008. "Are financial development and corruption control substitutes in promoting growth?," Journal of Development Economics, Elsevier, vol. 86(2), pages 414-433, June.
    18. Daniel Kaufmann & Aart Kraay, 2002. "Growth without Governance," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Fall 2002), pages 169-230, August.
    19. Pramod Kumar Naik & Puja Padhi, 2015. "On the linkage between stock market development and economic growth in emerging market economies," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 14(4), pages 363-381, November.
    20. Ulusoy, Veysel & Demiralay, Sercan, 2017. "Energy demand and stock market development in OECD countries: A panel data analysis," Renewable and Sustainable Energy Reviews, Elsevier, vol. 71(C), pages 141-149.
    21. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    22. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    23. Su, Thanh Dinh & Bui, Thi Mai Hoai, 2017. "Government size, public governance and private investment: The case of Vietnamese provinces," Economic Systems, Elsevier, vol. 41(4), pages 651-666.
    24. Jia Shao & Plamen Ch. Ivanov & Boris Podobnik & H. Eugene Stanley, 2007. "Quantitative relations between corruption and economic factors," Papers 0705.0161, arXiv.org.
    25. Dutta, Nabamita & Roy, Sanjukta, 2016. "The interactive impact of press freedom and media reach on corruption," Economic Modelling, Elsevier, vol. 58(C), pages 227-236.
    26. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    27. Yang, Benhua, 2011. "Does democracy foster financial development? An empirical analysis," Economics Letters, Elsevier, vol. 112(3), pages 262-265, September.
    28. Boris Podobnik & Jia Shao & Djuro Njavro & Plamen Ivanov & H. Stanley, 2008. "Influence of corruption on economic growth rate and foreign investment," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 63(4), pages 547-550, June.
    29. Ng, Adam & Ibrahim, Mansor H. & Mirakhor, Abbas, 2016. "Does trust contribute to stock market development?," Economic Modelling, Elsevier, vol. 52(PA), pages 239-250.
    30. Wang, Yuanyuan & You, Jing, 2012. "Corruption and firm growth: Evidence from China," China Economic Review, Elsevier, vol. 23(2), pages 415-433.
    31. Asongu Simplice, 2011. "Government Quality Determinants of Stock Market Performance in African Countries," Working Papers of the African Governance and Development Institute. 11/019, African Governance and Development Institute..
    32. Franco Modigliani & Enrico Perotti, 1997. "Protection of minority interest and the development of security markets," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(7-8), pages 519-528.
    33. Lopamudra Mishra, 2018. "Causality between electricity consumption and economic growth: empirical evidence from India," International Journal of Indian Culture and Business Management, Inderscience Enterprises Ltd, vol. 17(4), pages 417-427.
    34. Areneke, Geofry & Kimani, Danson, 2019. "Value relevance of multinational directorship and cross-listing on MNEs national governance disclosure practices in Sub-Saharan Africa: Evidence from Nigeria," Journal of World Business, Elsevier, vol. 54(4), pages 285-306.
    35. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2009. "Cultural Biases in Economic Exchange?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(3), pages 1095-1131.
    36. Sin-Yu Ho & Bernard Njindan Iyke, 2017. "Determinants of stock market development: a review of the literature," Studies in Economics and Finance, Emerald Group Publishing Limited, vol. 34(1), pages 143-164, March.
    37. Bill Francis & Eric Ofori, 2015. "Political regimes and stock market development," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(1), pages 111-137, June.
    38. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2007. "The worldwide governance indicators project : answering the critics," Policy Research Working Paper Series 4149, The World Bank.
    39. Choi, In, 2001. "Unit root tests for panel data," Journal of International Money and Finance, Elsevier, vol. 20(2), pages 249-272, April.
    40. Soo-Wah Low & Lain-Tze Tee & Si-Roei Kew, 2015. "Does the quality of governance matter for equity market risk? Evidence from emerging and developed equity markets," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 16(3), pages 660-674, June.
    41. Lehkonen, Heikki & Heimonen, Kari, 2015. "Democracy, political risks and stock market performance," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 77-99.
    42. Soo-Wah Low & Si-Roei Kew & Lain-Tze Tee, 2011. "International Evidence on the Link between Quality of Governance and Stock Market Performance," Global Economic Review, Taylor & Francis Journals, vol. 40(3), pages 361-384, September.
    43. Luzi Hail & Christian Leuz, 2006. "International Differences in the Cost of Equity Capital: Do Legal Institutions and Securities Regulation Matter?," Journal of Accounting Research, Wiley Blackwell, vol. 44(3), pages 485-531, June.
    44. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    45. Nihal Bayraktar, 2014. "Measuring relative development level of stock markets: Capacity and effort of countries," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 14(2), pages 74-95, June.
    46. Bolgorian, Meysam, 2011. "Corruption and stock market development: A quantitative approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(23), pages 4514-4521.
    47. Charles O. Manasseh & Timothy E. Mathew & Jonathan E. Ogbuabor, 2017. "Investigating the Nexus between Institutional Quality and Stock Market Development in Nigeria: An Autoregressive Distributed Lag (ARDL) Approach," African Development Review, African Development Bank, vol. 29(2), pages 272-292, June.
    48. Leopoldo Fergusson, 2006. "Institutions for Financial Development: What are they and where do they come from?," Journal of Economic Surveys, Wiley Blackwell, vol. 20(1), pages 27-70, February.
    49. Law, Siong Hook & Azman-Saini, W.N.W. & Ibrahim, Mansor H., 2013. "Institutional quality thresholds and the finance – Growth nexus," Journal of Banking & Finance, Elsevier, vol. 37(12), pages 5373-5381.
    50. Siong Law & W. Azman-Saini, 2012. "Institutional quality, governance, and financial development," Economics of Governance, Springer, vol. 13(3), pages 217-236, September.
    51. Dong-Hyeon Kim & Shu-Chin Lin, 2013. "Interrelationships among banks, stock markets and economic growth: an empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 45(31), pages 4385-4394, November.
    52. Buchanan, Bonnie G. & Le, Quan V. & Rishi, Meenakshi, 2012. "Foreign direct investment and institutional quality: Some empirical evidence," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 81-89.
    53. José Antonio Alonso & Carlos Garcimartin & Virmantas Kvedaras, 2020. "Determinants of institutional quality: an empirical exploration," Journal of Economic Policy Reform, Taylor & Francis Journals, vol. 23(2), pages 229-247, July.
    54. Huang, Yongfu, 2010. "Political Institutions and Financial Development: An Empirical Study," World Development, Elsevier, vol. 38(12), pages 1667-1677, December.
    55. Nicholas Charron & Lewis Dijkstra & Victor Lapuente, 2014. "Regional Governance Matters: Quality of Government within European Union Member States," Regional Studies, Taylor & Francis Journals, vol. 48(1), pages 68-90, January.
    56. Hooper, Vince & Sim, Ah Boon & Uppal, Asfandyar, 2009. "Governance and stock market performance," Economic Systems, Elsevier, vol. 33(2), pages 93-116, June.
    57. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(2), pages 277-297.
    58. Jia Shao & Plamen Ch. Ivanov & Boris Podobnik & H. Eugene Stanley, 2007. "Quantitative relations between corruption and economic factors," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 56(2), pages 157-166, March.
    59. Charles Amo Yartey, 2010. "The institutional and macroeconomic determinants of stock market development in emerging economies," Applied Financial Economics, Taylor & Francis Journals, vol. 20(21), pages 1615-1625.
    60. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    61. Alberto Chong & Luisa Zanforlin, 2000. "Law tradition and institutional quality: some empirical evidence," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(8), pages 1057-1068.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhao, Tianjiao, 2021. "Board network, investment efficiency, and the mediating role of CSR: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 897-919.
    2. Amal Hamrouni & Abdullah S Karaman & Cemil Kuzey & Ali Uyar, 2023. "Ethical environment, accountability, and sustainability reporting: What is the connection in the hospitality and tourism industry?," Tourism Economics, , vol. 29(3), pages 664-695, May.
    3. Kuzey, Cemil & Fritz, Morgane M.C. & Uyar, Ali & Karaman, Abdullah S., 2022. "Board gender diversity, CSR strategy, and eco-friendly initiatives in the transportation and logistics sector," International Journal of Production Economics, Elsevier, vol. 247(C).
    4. Nejla Ould Daoud Ellili & Cemil Kuzey & Ali Uyar & Abdullah S. Karaman, 2024. "Moderating role of internal factors in corporate social responsibility reporting persistence and corporate market value," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(4), pages 2878-2899, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Olufemi Adewale Aluko & Bolanle Aminah Azeez, 2019. "Effectiveness of legal institutions in stock market development in sub-Saharan Africa," Economic Change and Restructuring, Springer, vol. 52(4), pages 439-451, November.
    2. Glauco De Vita & Chengchun Li & Yun Luo, 2022. "Legal origin and financial development: A propensity score matching analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 535-553, January.
    3. Effiong, Ekpeno, 2015. "Financial Development, Institutions and Economic Growth: Evidence from Sub-Saharan Africa," MPRA Paper 66085, University Library of Munich, Germany.
    4. Chris Doucouliagos & Jakob de Haan & Jan-Egbert Sturm, 2022. "What drives financial development? A Meta-regression analysis [A new database of financial reforms]," Oxford Economic Papers, Oxford University Press, vol. 74(3), pages 840-868.
    5. Ahmed, Walid M.A., 2020. "Corruption and equity market performance: International comparative evidence," Pacific-Basin Finance Journal, Elsevier, vol. 60(C).
    6. Siong Law & W. Azman-Saini, 2012. "Institutional quality, governance, and financial development," Economics of Governance, Springer, vol. 13(3), pages 217-236, September.
    7. Khan, Muhammad Atif & Gu, Lulu & Khan, Muhammad Asif & Bhatti, Muhammad Ishaq, 2022. "Institutional perspective of financial sector development: A multidimensional assessment," Economic Systems, Elsevier, vol. 46(4).
    8. Clement Olalekan Olaniyi & Sunday Idowu Oladeji, 2021. "Moderating the effect of institutional quality on the finance–growth nexus: insights from West African countries," Economic Change and Restructuring, Springer, vol. 54(1), pages 43-74, February.
    9. Khalid Ahmed & Bareerah Khan & Ilhan Ozturk, 2021. "Dynamics between disaggregates of governance and stock market performance in selected South Asia countries," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 802-813, January.
    10. Lakshmi, Geeta & Saha, Shrabani & Bhattarai, Keshab, 2021. "Does corruption matter for stock markets? The role of heterogeneous institutions," Economic Modelling, Elsevier, vol. 94(C), pages 386-400.
    11. Simplice A. Asongu & Joseph Nnanna & Vanessa S. Tchamyou, 2020. "Finance, Institutions and Private Investment in Africa," Working Papers of the African Governance and Development Institute. 20/080, African Governance and Development Institute..
    12. James B. Ang, 2019. "Culture, Legal Origins, And Financial Development," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 1016-1037, April.
    13. Imen Mohamed Sghaier, 2018. "Financial Development, Institutions and Economic Growth in North African Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 21(69), pages 53-72, September.
    14. Qamar ABBAS & Muhammad RAMZAN & Sumbal FATIMA, 2022. "Financial development and public debt. Estimating the role of institutional quality," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(632), A), pages 5-26, Autumn.
    15. Khalid, Usman & Shafiullah, Muhammad, 2021. "Financial development and governance: A panel data analysis incorporating cross-sectional dependence," Economic Systems, Elsevier, vol. 45(2).
    16. Ng, Adam & Ibrahim, Mansor H. & Mirakhor, Abbas, 2016. "Does trust contribute to stock market development?," Economic Modelling, Elsevier, vol. 52(PA), pages 239-250.
    17. Bruno Emmanuel Ongo Nkoa & Thierry Mamadou Asngar & Charles Christian Atangana Zambo & Donald Ferdinand Okere Atanga, 2023. "Does institutional quality accelerate the growth of financial markets in Africa?," SN Business & Economics, Springer, vol. 3(4), pages 1-26, April.
    18. José María Díez-Esteban & Jorge Bento Farinha & Conrado Diego García-Gómez, 2019. "How does national culture affect corporate risk-taking?," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 9(1), pages 49-68, March.
    19. Law, Siong Hook & Singh, Nirvikar, 2014. "Does too much finance harm economic growth?," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 36-44.
    20. Simplice A. Asongu, 2014. "Finance and Democracy in Africa," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 6(3), pages 92-116, October.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:mgtdec:v:42:y:2021:i:4:p:998-1021. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/7976 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.