Measuring the impact of governance quality on stock market performance in developed countries

Abstract

The aim of this article is to examine the relationship between stock market performance and country level governance indicators. A good quality of governance in a country ensures effective implementation of laws which can protect the investor and improve stock market performance and vice versa. Our study utilises annual stock returns and country level governance indicators for 25 developed countries from 1996 to 2018. The fixed effect estimation suggests that stock market performance and governance indicators share a positive relationship. Our findings suggest that high quality of governance is associated with higher returns on stock. Institutional quality is a preconditioned for financial developed that set the direction of change to reduce transaction costs and agency costs and make profitable projects available to firms that subsequently leads to higher demand for equity financing. These findings have significant implications for stock market policymakers and standard asset pricing models that only include market risk factors to predict future expected stock returns.

Stock market development: a reflection of governance regulatory framework in Nigeria

“…This can be further explained that the improvement of the regulatory framework is highly associated with better market performanceit has strong explanatory power for the level of stock market performance in Nigeria. As posited by Eita (2015), Winfu et al (2016), Imran et al (2020), that countries with sound regulatory frameworks would experience good stock market returns, these findings strengthen this proposition for the country. In the long run, poor regulatory framework and inadequate supervision mechanisms could lead to the erosion of investors' confidence and the undermining of the development of stock market.…”

“…Regarding the control variables, INF has a significant negative effect on the stock markets indicators across models. This implies that as INF increases, shareholders will demand for Stock market development higher premium, while higher trading rates can result in higher stock returns and vice versa this supports the work of Imran et al (2020). On the effect of GDP, estimates are significant and positive, suggesting that any variation in the level of economic growth will have a noticeable impact on stock market returns.…”

“…These scenarios have consistently challenged the availability of evidence-based for the government of its role in the designing of viable regulatory policy in the country. Since the bulk of studies concerned with elucidating why a sound regulatory policy can have real effects for the stock market have mostly employed regression approach to cross-country or panel data (Eita, 2015;Winfu et al, 2016;Umar and Nayan, 2018;Imran et al, 2020), there is need to provide critical evidence that would help the government develop regulatory measures that could work better. The study's aim is not concerned with particular categories of regulation (such as competition law and employment law) but rather how to enhance the processes for improving regulation in Nigerian context.…”

How COVID-19 has shaken the sharing economy? An analysis using Google trends data

“…Therefore, the sharing platforms claim to be the pathway to sustainability (Heinrichs, 2013). On the other hand, the governance quality should be strengthen that set the direction of change to achieve greater financial stability and growth (Zulfiqar et al, 2020). However, COVID-19 has exposed the risks involved in sharing with strangers and the social connections that used to be the driving force of SE have become the reason behind the lower demand for SE services.…”

Quantitative measurement and analysis of FinTech risk in China

“…Financial risk has an important impact on the national economy. The government is responsible for regulating the financial market (Gulzar et al, 2019;Imran et al, 2020). The risk evolution of online lending in China has inspired regulators to strictly supervise all financial innovations as early in their development as possible; otherwise, higher costs are required to recover the losses caused by risks.…”