International stock markets: Essays on the determinants and consequences of financial market development Defended on Thursday, 2 May 2019

This dissertation consists of three empirical papers about the determinants and consequences of financial market development in an international context. It aims to contribute to our understanding of the functioning of global financial markets. Each chapter provides evidence of a different issue related to a specific stage of financial market development.

Chapter 2 provides an evaluation of the relative importance of structural and policy determinants of financial sector development by analyzing the success and failure of 59 newly established (“nascent”) stock markets since 1975. The results point to a more important role of banks, demand factors, and early success in fostering long-term stock market development, rather than structural factors such as legal and political institutions.

Chapter 3 examines the political consequences of opening a stock exchange in 34 African countries over 1960-2016. This chapter shows that political leaders stay longer in office when they open a stock exchange if local political institutions are autocratic. Moreover, opening a stock exchange in autocracies is associated with slower subsequent democratization of political institutions. This result is surprising, because it suggests that incumbent elites may actually have incentives to support financial development, rather than opposing it.

Chapter 4 investigates the role of institutional investors on the governance of listed US firms, by analyzing the impact of ties between index and non-index funds within the same mutual fund family on the value of firms in which both funds invest. This chapter shows that family ties are associated with higher non-index fund ownership. Furthermore, firms held by funds with family ties are more profitable and have higher valuations.