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VI. D. Shareholder Protection: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?

 
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VI. D. Shareholder Protection: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
   

Another key determinant of stock market development is the level of shareholder protection in publicly traded companies, as stipulated in securities or company laws (Shleifer and Vishny, 1997). Stock market development is more likely in countries with strong shareholder protection because investors do not fear expropriation as much. In addition, ownership in such markets can be relatively dispersed, which provides liquidity to the market. La Porta et al (1999) provide evidence for the importance of minority rights protection by using indicators of the quality of shareholder protection as written in laws. They demonstrate that the quality of shareholder protection is correlated with the capitalization and liquidity of stock markets in 49 countries around the world. Laporta et al (1997) find that countries with lower quality of legal rules and law enforcement have smaller and narrower capital markets and that the listed firms on their stock markets are characterized by more concentrated ownership. Demirguc-Kunt and Maksimovic (1998) show that firms in countries with high ratings for the effectiveness of their legal systems are able to grow faster by relying more on external finance.

IMF Working Paper African Department Stock Market Development in Sub-Saharan Africa: Critical Issues and Challenges Prepared by Charles Amo Yartey and Charles Komla Adjasi August 2007 To learn more about this author, visit International Monetary Fund's Website.

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VI. D. Shareholder Protection: WHAT DETERMINES STOCK MARKET DEVELOPMENT IN AFRICA?
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The IMF is an international organization of 185 member countries. It was established to promote international monetary cooperation, exchange stability, and orderly exchange arrangements; to foster economic growth and high levels of employment; and to provide temporary financial assistance to countries to help ease balance of payments adjustment. Since the IMF was established its purposes have remained unchanged but its operations—which involve surveillance, financial assistance, and technical assistance—have developed to meet the changing needs of its member countries in an evolving world economy.
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