Stock market development: An analysis from a multilevel and multi-country perspective

Abstract

Stock markets have been rapidly developed around the world during the last 20 years. Accordingly, there is sincere academic interest in understanding the determinants of this phenomenon. Most studies advocate that the development of a stock market is influenced by a few individual country variables such as the origin of its legal system, enforcement of law, accounting patterns, transparency, corporate ownership structure, and the level of creditor and minority investor protection. This paper extends previous empirical literature concerning the determinants of stock market development. We built a unique sample of 50 countries, ranging from those with emerging to developed economies. From a set of 60 potential variables, 12 factors were employed using multiple regression. The research breaks new ground by using different constructs taken from financial literature, such as the Human Development Index (HDI, 2010), Managerial Skills of Entrepreneurs and Democracy of the Country. Results showed that more factors may influence the development of stock markets, such as the adaptability of firms and the openness of a country, helping avoid the multicollinearity effects that may have affected earlier studies. © 2011 Brazilian Administration Review. All rights reserved.