Corruption and Stock Market Development: New Evidence from GCC Countries

Abstract

The theoretical relationship between corruption and stock market development has been debated quite extensively in the literature, yet the evidence on the impact of corruption on stock market development remains contradictory and ambiguous. This paper investigates the impact of corruption, as measured by Corruption Perception Index (CPI) published by Transparency International, on stock market development focusing exclusively on Gulf Cooperation Council (GCC) countries with its special characteristics of combining richness with relatively high level of corruption. Results from an estimation of alternative regression models on a panel of six GCC countries over the period 2003–2011, through which CPI is legitimately comparable, confirms a positive impact of corruption on stock market development, where the latter is measured by market capitalization. This is consistent with the view that corruption greases the wheels of economy by expediting transactions and allowing private firms to overcome governmentally imposed inefficiencies.

Impacts of Corruption Control on Economic Growth in Relationship with Stock Market and Trade Openness

“…The regression coefficients of interaction variables with negative signs show that variable stock market has an opposite impact on variable corruption control, ie when variable stock market increases, variable corruption control decreases, meaning that the corruption increases. Corruption not only affects the performance of stock market (Hooper, Sim & Uppal, 2009;Bolgorian, 2011) but also the performance of the growth model by reducing the motivation and performance of all the resources in the economy (Duncan, 2014;Talmaciu, 2014). Therefore, the result of this interaction restricts economic growth in the impact direction of corruption control on the economic growth.…”

“…The political institutions in developing nations still concentrate a great deal of power in the public sector on the widespread corruption compared to the richer and developed nations of the world (Olken & Pande, 2012;Svensson, 2005;Treisman, 2000), which affects development of stock market in particular and economic growth in general (Bolgorian, 2011;Yartey, 2010;Hooper, Sim & Uppal, 2009). In addition, compared to the developed countries, developing countries account for more than 60% of the world's population but produce less than 30% of global GDP (Spence, 2011).…”

Institutional structures and financial market development in Africa

“…Moreover, corruption has a significant influence on many facets of an economy, such as, foreign direct investment, productivity or income inequality. Also, the ability of the financial sector to operate efficiently is influenced by the level of corruption that prevails in an economy (Aljazaerli, Sirop, & Mouselli, 2016;Hillman & Krausz, 2004). Financial markets imbued with corrupt practices can undermine savings and deter investors.…”

Gold Investment Incentives: An Empirical Identification of the Main Gold Price Determinants and Prognostication of Gold Price Future Trends

“…The periods of financial contagion have evidently raised the risk of securities (Vychytilova, 2018;Mačí & Valentová Hovorková, 2017; Čulková et al, 2015;Vukovic et al, 2017) and returned the interest in gold as in alternative financial instrument since gold has historically been treated as a standard of high value. Of course, other alternative investments should be mentioned here too (Jurevičienė, & Jakanovytė, 2015;Nuhiu et al, 2017;Mouselli et al, 2016;Śliwiński & Łobza, 2017;Nawrocki, 2018). The series of the global financial crises has even augmented the belief that gold can provide investment protection and serve as a perfect risk management tool.…”