What Determines Bond Market Development? New Theoretical Insights

Abstract

Purpose- To diversify financing portfolio and reduce the reliance on the banking system, developing economies have realized the importance of bond market development. Bond markets facilitate economies to be more resilient towards the events of financial crises. Therefore, the share of the bond market in the financial system of the Asian economies has remarkably increased in the last decade. However, the academic literature on the bond market is very limited as compared to bank and equity markets. This was mainly because of the unavailability of vast data due to the absence of secondary markets for bonds in most of the economies. To fill this gap, this conceptual study postulates the theoretical relationships of bond market with various macroeconomic and financial factors. The study also assumes some new dimensions for bond financing and opens discussion for scholarly literature and empirical justifications. 
 Design/Methodology- Content analysis approach is used to review relevant literature for the possible associations of the bond market with macroeconomic and financial factors. 
 Practical Implications- The theoretical relationships discussed in the paper need empirical testing in future research to conclude policy implications. If the relationship between foreign capital and bond securities is established with empirical justification, we draw the policy that concerned authorities need to create a suitable environment for the attraction of foreign capital to provide support to the development of domestic debt market.

Factors affecting sukuk market development: empirical evidence from sukuk issuing economies

“…However, the relevant empirical literature on the topic is very limited. Some of the notable empirical works on sukuk have been done by Adam and Thomas (2004), Wilson (2008), Jaffer (2011), Godlewski et al (2013), Van Wijnbergen and Zaheer (2013), Azmat et al (2014), Smaoui et al (2017) and Aman et al (2019aAman et al ( , 2019b. The focus of these prior studies is on firm specific attributes of sukuk, like the capital structure of the firm, pricing of the sukuk and suitable underlying assets for sukuk.…”

“…In addition, Asian economies are in the phase of developing infrastructural connections within as well as across the economies; therefore, they need huge long term finances. These financial needs can be met through mobilizing local as well as regional capital resources with the help of having established sukuk and bonds markets (Aman et al, 2019a(Aman et al, , 2019bMusa et al, 2020). Well-developed sukuk and bond markets will simultaneously make Asia more resilient to the economic crises, attract the foreign capital inflows and turn the regional savings of Asia into fruitful investments (Bhattacharyay, 2010).…”

The Role of Macroeconomic and Financial Factors in Bond Market Development in Selected Countries

“…The importance of a bond market development was realized by both developing and developed economies after the recurrent events of financial crises in the past couple of decades, 1997 Asian financial crisis, 2007-2008global financial crisis and 2011-2012European debt crisis (Asian Development Bank, 2002Kawai, 2007). One of the major reasons for these crises was identified as over-dependence on a domestic banking industry (Aman, Naim, & Isa, 2019a;. Banking system is mainly designed Global Business Review for short and medium-term funding opportunities.…”

“…These economies have been engaged in creating infrastructural connection across the regional economies, which require huge and long-term finances. Therefore, long-term bonds are the best available instruments to generate required finances by using regional resources (Aman et al, 2019). In addition, the development of bond markets in developing economies has again attracted foreign capital inflows to these economies, which were reversed back before because of the absence of capital markets and investment uncertainty (Burger & Warnock, 2007; Jiang, Tang, & Law, 2002; Yoshitomi & Shirai, 2001).…”

What Determines Sukuk Market Development? New Theoretical Insights

“…Therefore, it is timely and relevant to see the various factors that determine the development of the sukuk and bond markets. In this regard, various studies have been conducted in the last decade to study the determinants of conventional bond market (Adelegan & Radzewicz-Bak, 2009;Aman, Naim, & Isa, 2019;Ameer, 2007;BIS, 2002;Braun & Briones, 2006;Burger & Warnock, 2004;Fanta, 2017;Fink, Haiss, & Hristoforova, 2003;Godlewski, Turk-Ariss, & Weill, 2013;Gopinath, 2007;Herring & Chatusripitak, 2000;Hristoforova, 2003;Kapingura & Makhetha-Kosi, 2014;Matei, 2013;Mu, Phelps, & Stotsky, 2013;R.P. Pradhan et al, 2015;Rudra P. Pradhan, Arvin, Bennett, Nair, & Hall, 2016;Sharma, 2001;Thumrongvit, Kim, & Pyun, 2013).…”