Capital Market Development and Confidence in Disclosure Quality

Abstract

High quality disclosures can promote investor confidence and facilitate capital market development, but evidence on market-level consequences of confidence associated with disclosures is sparse. Using a survey-based measure that directly captures beliefs about disclosure quality in a panel with over 1,000 country-year observations, this study examines macro-level capital market consequences of confidence in disclosure quality. Evidence from panel regressions controlling for country effects, prior levels of market development, and other plausible determinants suggests that more positive beliefs about disclosure quality are associated with subsequently more active stock markets and larger credit markets, but not with larger equity markets. The results provide mixed support for prior studies suggesting positive effects of confidence and disclosure quality on capital market development.

Keywords: confidence; disclosure quality, equity market development, credit market development

JEL Classification: G15, G18, G38, M41