Role of Securities Law in the Development of Domestic Corporate Bond Markets

Despite the various reforms instituted to foster local markets for fixed income securities, the experience of the emerging markets has been mixed. This study empirically investigates the features and enforcement of securities law that may facilitate or constraint broadening and deepening of the corporate bond markets. Bond market development in 49 countries is examined using corporate governance and securities law indices, and TOBIT estimation procedure for dealing with the econometric issues associated with truncated data. The study provides evidence that securities laws play an important role in the development of bond markets just as they do in the case of stock markets. The results provide further support that securities laws matter because they facilitate private contracting rather than provide for public regulatory enforcement. Contrary to earlier findings with respect to stock market development that several aspects of public enforcement do not matter, our results, however, indicate that the supervisor’s power to impose criminal sanctions may have a bearing on bond market development