Governing Stock Markets in Transition Economies: Lessons from China
American Review of Law and Economics, Vol. 7, No. 1, pp. 184-210, 2005
Posted: 1 Dec 2004
Jumpstarting stock markets in transition economies has proved difficult. These countries lack effective legal governance structures and face severe information problems. Yet, not all financial markets failed because of adverse conditions. Using China's initial stock market development as a case study, this paper suggests that administrative governance can substitute for formal legal governance. At the core of this governance structure was the quota system. It created incentives for regional competition and decentralized information collection at the IPO stage. It was also used to punish regions and responsible officials when companies from their regions failed as evidenced in this paper.
JEL Classification: G3, K2, K4, N2
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