The Politics of Equity Finance in Emerging Markets

by Kathryn C. Lavelle

Overview

Emerging market stock issuance relative to GDP rose in the late twentieth century to levels that roughly matched that of advanced, industrial markets. Nonetheless, the connection between owning shares of emerging market stock and the ability to influence the management of these firms remains fundamentally different from the analogous institutional connection that has evolved in industrial markets. The reasons for the differences in emerging markets are both historical and political in nature. That is, local equity markets have had the objective of providing for some degree of local ownership and control of large economic entities since the late nineteenth century. However, local markets have operated under different global political structures since that time, ranging from imperialism, to world wars, to sovereign developmental states, to neo-liberal states. Shares issued under these different structures have been reconfigured over time, resulting in a lack of convergence along either the Anglo-American or Continental models of corporate governance. The author uses a political science paradigm to explain the growth of emerging equity markets. She departs from conventional economic explanations and examines politics at the micro-level of large issues of emerging market stock. The second half of the book presents case studies dealing with emerging market countries in Latin America, Asia, Russia and Eastern Europe, Africa and the Middle East. The case studies connect the regional, state, and firm levels to detail the multiple ownership and control arrangements, and to dispel the notion that mere quantitative growth of these markets will lead to a convergence in financial institutional structures along the lines of the industrial core of the world economy.

Product Details

ISBN-13:	9780195174106
Publisher:	Oxford University Press
Publication date:	10/14/2004
Pages:	296
Product dimensions:	9.10(w) x 6.10(h) x 0.40(d)

About the Author

Case Western Reserve University

Table of Contents

List of IllustrationsList of TablesPrefaceIntroduction1. Politics and the Extension of Equity Finance to Emerging MarketsSection I: Equity Finance in Historical Perspective2. Financing Joint-Stock Companies in the Colonial Era3. New States, New State Involvement4. Globalization without Integration: International Considerations5. Privatization and Share Supply in Emerging MarketsSection II: Case Studies of Stock Exchanges in Regional PerspectiveSection Introduction6. Latin America7. Asia and the Pacific8. Russia and East Europe9. Africa and the Middle EastSection III: Conclusion10. Stock Exchanges in the Global Political EconomyAppendixesIndex
IllustrationsFiguresDeveloped countries' stock of FDI in developing countries by host region1. Market capitalization of EM firms listed in London2. Market capitalization of EM firms listed in New York3. International privatizations as a percentage of international equities offered4. Equity issued as a percentage of GDP5. Growth in market capitalization of emerging markets6. Growth in number of listed domestic companies in emerging markets
Tables1. Appearance of organized equity markets2. Announced international equity issues3. Summary of stock exchanges established in the imperial era4. Average annual growth rates of flows of direct foreign investment from developed countries to developing countries, 1960-19785. Russian and Eastern European methods of privatization6. Privatized company stock transactions in Chile7. Summary of Latin American cases examined8. Summary of Asian cases examined9. Growth of the Budapest stock exchange10. Growth of the Warsaw stock exchange11. Summary of Russian and East European cases examined12. Summary of African and Middle Eastern cases examined

Editorial Reviews

Equity markets have grown rapidly around the world, particularly in developing countries. This growth has been fostered partly by privatization of state-owned enterprises, partly by a desire for new capital other than debt, and partly by international financial institutions, especially the International Finance Corporation (IFC) of the World Bank. But as Lavelle makes clear, the term "stock market" means much less in most countries than the label seems to imply. Experience across countries is diverse; stock-issuing firms in many countries remain controlled by small groups of local investors (or by the government), "corporate governance" is far from the (still imperfect) practices in the United Kingdom and the United States, corporate accounts are unreliable, and protection for minority shareholders is rudimentary to nonexistent. In short, stock markets are often mechanisms for insiders to fleece outsiders, as they were not so long ago in many European countries. Despite its occasional lapses into jargon, this book usefully recounts the recent evolution of equity markets in 16 emerging economies, summarizes the nature and extent of privatization in many countries, and discusses the role of the IFC in fostering equity markets since the 1960s.

Foreign Affairs

"Kathryn Lavelle explains in clear, succinct terms how national political processes lead to equity market growth, and how that growth affects the process of corporate governance - and why it sometimes fails to do so as governments maintain a continuing grip of firms (especially those formerly state-owned). She links this discussion - through case studies focusing on Eastern Europe, Asia, Latin America and Africa - to cross-border equity flows and global capital markets, and to the role of international development organizations. The discussion covers the appearance of new financial products and new kinds of financial intermediaries in emerging markets, notably viable equity markets. Much of the discussion provides good news, although there are plenty of shadows involving missed opportunities and he potential for economic contamination through volatile cross-border capital flows"IR. From the Foreword by Ingo Walter - The Stern School of Business - NYU

"This book will be of value to those interested in equity finance in the developing world."—CHOICE

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