Dynamics between disaggregates of governance and stock market performance in selected South Asia countries

Abstract

This study explores the dynamics between disaggregated factors of governance and stock market development for the panel of selected South Asian countries (i.e., Bangladesh, India, Pakistan and Sri Lanka). Using newly developed data for disaggregates of governance with annual frequency between 1996 and 2014, this study pioneers in South Asian context. Doing so, this study incorporates dynamic panel data technique pool mean group estimation for robust and policy oriented outcomes. The empirical results show that three indicators of governance (control of corruption, accountability and rule of law) have a positive and statistically significant impact on stock market development. The results of long‐run estimations are homogenous across the countries but, the short‐run estimates, and the speed of adjustment towards the long‐run equilibrium are found to be heterogeneous. It could be due to volatility effect of governance in each cross section country. From the policy perspective, the study concludes that the institutional quality and governance are the significant factors on market capitalization in the panel countries. The institutional factors (i.e., control of corruption, accountability and rule of law) support stock market development through high market capitalization, strengthens investor's confidence for long term investment in the countries.

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

“…Therefore, the first hypothesis concerning the direct relationship between IQUAL and SMDEV is accepted based on selected IQUAL dimensions and SMDEV indicators. The results overall are consistent with regional studies realized in Africa (Asongu, 2012) and Asia (Ahmed et al, 2020; Gani & Ngassam, 2008) providing empirical evidence on the institutions' role in SMDEV. The findings are also indirectly in congruence with Hooper et al (2009) that found stock markets located in countries with better quality institutions promise higher equity returns and lower risk.…”

“…Fourth, prior studies are limited to a certain country such as Nigeria (Manasseh et al, 2017) or a specific region such as Africa (Asongu, 2012;Yartey, 2007), Asia (Ahmed et al, 2020;Gani & Ngassam, 2008), and MENA (Cherif & Gazdar, 2010). Although these studies provide valuable insights into the understanding of the association between the IQUAL and market development at the country and regional level, focusing on a specific country or region hinders the generalizability of their findings.…”

Good Governance and Sustainable Investment: The Effects of Governance Indicators on Stock Market Returns

“…Interestingly, the indicator Rule of Law (ROL) is related to corporate governance in the business sector. With this quality, the stock market will benefit significantly from improving the rule of law (Ahmed et al, 2020). According to Vega et al (2015), the Sarbanes Oxley Act (SOA) was applied in 2002 to avoid fraudulent actions in firms that positively impacted the US stock market.…”

Determinants of Non-Performing Loans (NPLs); Evidence from Banking Sector of Pakistan

“…Approach for the steadiness and handling risk in emerging and advanced economies are dissimilar. The cause is that emerging economies are underdeveloped and have diverse hazard dynamics (Hussain, Oad, Ahmad, Irfan, & Saqib, 2021;Ahmed, Khan, & Ozturk, 2021). Therefore, while providing loan facilities to various sectors, the intermediary role of banking sector becomes vital in any economy (Bougatef, 2016).…”