JEL Classifications: G15, G18, G38
CAPITAL MARKET CHALLENGES AND DEVELOPMENT PREREQUISITES IN GEORGIA Author: Mikheil Tokmazishvili
| Published: 2019-12-27
| Pages: 60 - 67
For Citation: Tokmazishvili,M.(2019).Capital Market Challenges and Development Prerequisites in Georgia. Globalization And Business, #8, pp. 60-67
The article describes the challenges of capital markets, concepts of effects of capital markets› development on the economic growth, the current conditions of the capital market in Georgia, restricting and stimulating factors and preconditions necessary for the expansion of the capital market. Through comparative analysis, the problems and trendsofdevelopmentofcapitalizationarepresented.
The formation of capital market is a long process. It requirestheformationoffinancialinstruments,consolidated legalormodelnorms,marketinfrastructureandinstitutions. In the developing countries, and moreover, in the Post- Soviet countries with least-developed economy and transformational law, the capital market is undeveloped considering the capacity of economy and its potential benefits.Thebankingsector›sabilitytofinancetheeconomy is restricted, the demand on investment capital is wide, as a result, with the traditional bank financing, establishment and development of the capital market is considered with anyalternative.
Thepaperanalyzesthecausesthatimpactonlocalcapital markets functioning and the prerequisites without which the capital market can not be formed and developed in Georgia. The characteristics of impact factors on the capital market throughexaminingofeconomicliteraturearepresented.
The strong institutions and the well-functioning legal systemareimportantforlocalmarketdevelopment,asthey provide the protection of investors› rights, including the protection of minority interests and attracting investors. The studies show that the country, where the rights of shareholders are protected and the transaction is not expensive, has more developed local markets, however, thereisthedifferentviewabouttheneedforregulatingthe securitiesmarket.Theinitialstudiesarguedthatthesecurities market may not be regulated, but according to the recent researches,theregulationisessentialforprivatecontractual frameworkstandardizationandfraudprevention.Todayitis widely recognized that the laws of securities are critical to thedevelopmentofthecapitalmarket;
Finally, the article proposes the structure of market prerequisites that bases on several piles: macroeconomic stability, institutional and legal system, market size, market compositionandpensionsystem,transparencyandfinancial infrastructure.Despitetheabsenceofinstitutional,legaland infrastructuralbarriers,manyeconomiesareunabletoattract investors in order to ensure the optimum level of capital marketandefficientliquidity.Inthisregard,thecompulsory pension systems are introduced, which is an opportunity to attract the long-term instruments of investment. It is the conditionofthedevelopmentofthelocalbondmarket.With the liberalization of financial markets and in the effective regulatoryenvironment,investmentsinthestatebondsthat dominate in Georgia today will be added by expansion of thecorporateprivatebondsmarket.Similarly,thederivative markets cannot be developed without a well-developed marketand,inturn,theywillcontributetothedevelopment of the capital market. Moreover, the bond market requires the well-developed money markets in order to encourage the monetary policy to ensure the stability of the percent ratethatwillsupportthedevelopmentofthebondmarket.
The developed infrastructure is one of the essential conditionsforthefunctionalityofthecapitalmarket.Itpromotes trade and information exchange and provides access to predictableproductsonthebackgroundofalesscostlysystem. The transparency and information provision of corporations is alsoimportant,whichinstantlyconnectsinvestorswithmoney investors. In the framework of the Association Agreement with the European Union, Georgia shall ensure approach to the legislation regulating trade with securities of the EU guidelines.Themainrequirementsofdirectivesaretoincrease the transparency of transactions and the price, the financial statementsoftheissuerandtheopennessoftheinformation, aswellastheequalconditionfortheinvestors.
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