Are Regulations the Answer for Emerging Stock Markets? Evidence from the Czech Republic and Poland
Quarterly Review of Economics and Finance (2007)
37 Pages Posted: 22 Jan 2015
Date Written: 2007
Does the emergence of a stock market require a well-developed legal and/or regulatory system? Although historical work by Neal and Davis (2005) and Stringham (2003) suggests that securities markets have successfully developed with little government oversight, numerous authors (including Black, 2001; Coffee, 1999; Frye, 2000; Glaeser et al, 2001; Mlčoch, 2000; Pistor, 2001, and Stiglitz, 1999, Zhang, 2006) argue that the Czech Republic and other Eastern European governments need more regulation for their newly created stock markets. They maintain that the Warsaw Stock Exchange, which is seen as more regulated, has outperformed the Prague Stock Exchange which is seen as largely unregulated. Thus increased regulations are a key to increased performance. This article, however, maintains that the evidence from the Czech experience has been misinterpreted. This article provides an in depth case study of the Czech stock market and finds that (a) Czech capital markets have been hindered by government intervention from their beginning, (b) that the evidence on Poland's superior performance is not as strong as suggested, and (c) that Czech regulators seem to be unqualified, lack the proper incentives, and are unlikely to benefit the market. Under these circumstances it appears that Neal and Davis (2005:311) are correct that increased government involvement is unlikely to improve the situation.
Keywords: Emerging stock market, Tunneling, Capital market
JEL Classification: G1, K2, P2
Suggested Citation: Suggested Citation