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
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