Stock Market, Competitive Environment, and the Role of the Government: Bangladesh Experience

Abstract

This paper shows that (i) government is subsidizing the elite stock
market when public provisions are the lowest compared to even the neighbors’,
(ii) listed companies are using more equity which is inconsistent with the
traditional pecking order theory, (iii) stock market development is contingent on
democracy and competitiveness in the economy, (iv) the Securities and
Exchange Commission is yet to have independent part time nonexecutive
members in its board which is a basic principle of today’s governance. Other
papers study the role of macroeconomic factors like income, investments, and
banking sector developments for stock market development whereas this paper
basically deals with the micro variables such as Bangladesh SEC, its listed
companies and their capital structure, institutional shareholders, investment in
stock market, and government’s subsidies to capital market to predict whether
these are supportive of stock market development. The other studies worked with
data only but this study worked with data as we1l as process aspects, for
example, the Board composition of the SEC. However, the similarity of these
studies is that all these studies conclude that the developing and the least
developed countries do not have prerequisites for stock market development.
This study surveys existing literature, then innovates further literature and
gathers evidences in support of the new literature. For evidences it uses the
annual reports of national and international stock markets, securities and
exchange commissions, development banks and commercial banks, and the
listed companies of home and abroad. The paper also uses data from the World
Bank, OEC, OECD, the United Nations, World Trade Organization, the
Economist Intelligence Unit and the IMD World Competitiveness Center.