China External Environment Monitor
Working Paper 2014.006
Dec.5 2014
Law and Structure of Capital Markets
Xian Gu
Oskar Kowalewski
This version: December 4, 2014
Preliminary and incomplete, comments welcome
Abstract
In this paper, we examine whether the legal systems affect the structure of capital markets in terms of the development of bond markets versus equity markets. Using a dataset of 42 developed and developing countries we find that a country's legal system, especially investor protection, determines the structure of capital market. Our results show that in countries with stronger creditor rights the bond markets are more developed than the equity markets. In opposition, in countries with stronger shareholder rights the equity markets are more developed than the bond markets. Additionally, we find that the effects of countries' financial reforms are strongly dependent on the strength of investor protections and information disclosure.
Key words:Bond market, Equity market, Law, Financial reform, Crisis
1.Introduction
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2.Data and Descriptive Statistics
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3.Methodology and results
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4.Financial reform, law and development of bond versus stock market
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5.The development of bond market versus stock market during crises
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6.Conclusions
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