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Capital markets rely on institutions and these in turn depend on the accounting profession. This paper considers how these relationships work and how policymakers can build on them

Capital markets play an important role in promoting economic activity worldwide by facilitating and diversifying firms’ access to finance. At the macro level, deepening capital markets, which have ample liquidity and developed secondary markets, are also reshaping the developing world, driving wealth creation and the emergence of powerful regional trading blocs. The fortunes of ACCA’s global membership are strongly tied to these developments.

This paper examines a number of challenges peculiar to emerging and frontier economies, which arguably merit further discussion. First, the paper considers the role of foreign investment, asking how emerging economies can manage ‘hot money’ and whether attracting foreign investment is a self-evident goal.
Second, it discusses the often-overlooked contribution of privatisations to the development of capital markets and questions whether discussions of good practice are consistent with environments in which former state-owned enterprises (SOEs) are the mainstream rather than exceptions to the profile of the typical listed firm. Similarly, it examines the contribution of pension funds and pension reform to the growth of capital markets, stressing matters of quality rather than quantity and the need for careful, gradual reform.

Finally, it looks at the important complications introduced by the prevalence of large family firms in emerging markets – substantial principal–principal conflicts that can undermine confidence and necessitate enhanced corporate governance arrangements, often directly involving the accounting profession.

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Published: 20 Jun 2012