Barriers to the development of small stock markets: A case study of Swaziland and Mozambique

Abstract

The establishment of a successful stock market in a developing economy can be a major source of economic growth if it provides development finance by channelling domestic\ud savings and attracting foreign investment. However, this objective is not always met, particularly in very small markets where there are barriers to efficient market operations. A case study of Swaziland and Mozambique illustrates that any potential gains to the domestic investment community are limited if there is insufficient liquidity and the political economy is such that ownership is not truly dispersed but rather remains in the hands of social elites. This paper finds that potential growth of small developing markets is further severely constrained by poverty and wealth inequality and consequently the impact on development is minimal

The impact of corporate governance measures on the performance of West African IPO firms

“…However all markets are characterised by narrow political economies controlled by social and political elites (Lavelle (2001); Hearn and Piesse (2009)) and only a handful of brokerage firms and indigenous investment banks with minimal trading activity. The lack of an established domestic institutional investor community in many of the markets combined with poor infrastructure create further difficulties in attracting much needed foreign investment (Hearn and Piesse (2009)).…”

“…The lack of an established domestic institutional investor community in many of the markets combined with poor infrastructure create further difficulties in attracting much needed foreign investment (Hearn and Piesse (2009)). An additional issue arises from trading activity occurring outside the formal exchanges with only the preagreed details being acknowledged during designated trading sessions as is the case in Ghana (Akotey, 2008).…”

“…Equally there is considerable emphasis in the more recent literature on the optimal role of firm level governance in the wake of the global 2008/2009 financial crisis and economic downturn and the role of institutions in facilitating optimal economic outcomes (Fosu et al (2010) Study of the West African is motivated by countries within this region exhibiting sharp differences between civil code law institutions, imparted by former French or Portuguese colonial metropole, and their common law counterparts, derived from former British colonial rule (Joireman, 2001). Equally owing to extractive nature of industrial development across the region with a principal focus of agricultural or mining commodities government apparatus and supportive commercial legal institutions are narrow in focus in promoting the interests of powerful local social and political elites (Lavelle (2001); Hearn and Piesse (2009)). However civil code law regimes by design are particularly vulnerable in the protection of property rights owing to their promotion of centralised authority and property rights of the state in preference to those of individual minority interests (Hayek, 1960).…”

“…However while this legislation has been generally adopted as best practice worldwide it's institutional origins are those of generally economically developed Western economies dominated by democratic institutions with a generally level political and legal institutions providing protection of property rights (Levine (2005); La Porta et al (2008)). These underlying assumptions concerning the social and political structure of the societal matrix in West African countries are at best tenuous given the prevalence of narrow political economies (Lavelle (2001); Hearn and Piesse (2009)) owing to their having inherited a narrow range of institutions from colonial metropoles that are geared to the engendering of political and social elites (Joireman (2001(Joireman ( , 2005). However the civil code institutional environment engenders collaborative networks between firms due to the relative weakness in legal contract enforcement (Hoskisson et al, 2004) which fits effectively within the deeper West African societal institutional matrix, itself shaped by traditional values and affiliations.…”

It Is Time to Reexamine the Role of Stock Markets in Developing Economies

“…Hearn and Piesse (2009), for example, found this to be an impediment to the development of the very small and liquidity-constrained Swaziland and Mozambique stock markets in the African region. The two markets remain among the smallest and with Downloaded by [University of Newcastle, Australia] at 00:15 27 December 2014 extremely low liquidity across the 19 or so African markets; in 1995, these and five other newly established markets in Africa were among the world's smallest and most illiquid (Kenny & Moss, 1998).…”