Why has the global capital market grown so rapidly in recent decade s?Will this growth continue through?
Dictionary of Business defines the capital market as a market in which long-term capital is raid by industry and commerce, the government, and local authorities. Th e money comes from private investors, insurance companies, pension funds, and bank s and is usually arranged by issuing hous and merchant banks. Stock exchanges are also part of the capital market in that they provide a market for the shares and loan sto cks that reprent the capital once it has been raid. It is the prence and sophisticati on of their capital markets that distinguishes the industria l countries from the develop ing countries, in that this facility for raising industrial and commercial capital is either abnt or rudimentary in the latter.
The global capital market has grown so rapidly in recent decades. So I would lik e to discuss about it in the essay.
This essay is organized as follow, introduction, body, conclusion. In the body par t, Section 1 shows why has the global capital market grown so rapidly in recent decad es. Section 2 talks about the continuance of the growth throughout the 2000s.
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Body
1. Why has the global capital market grown so rapidly in recent decades
In recent decades, the global capital market has grown so rapidly becau of the ri o f privatizations mainly. With private capital flows rising from less than 5 percent of w orld GDP in 1975 to about 20 percent today, privatizations have significantly increa d market liquidity. And also privatization takes a potential role global capital market d evelopment.
A. The Ri of Capital Market-Bad Finance
Capital market-bad finance has in fact been increasing in importance, both abs olutely and relative to financial intermediary-bad finance, in both developed and de veloping countries over the past decade. And also capital markets are in fact winning t he prent and em likely to dominate the future of corporate finance in developed an d developing countries alike.
a. The Stable Role of Commercial Banking in Modern Economies Ordinary "rela tionship banking" appears to be (at best) holding its own as a source of corporate fina ncing around the world, and is more likely in decline. The bits of banking that are gro wing rapidly are tho parts that provide high value-added products (especially risk m
anagement tools) and provide large-scale syndicated credits to corporate borrowers. D uring the late-1980s and early-1990s, when Japan and Germany appeared to be outper forming major capital market-oriented countries such as Britain and the US, the acade mic literature often favored bank-bad systems. Examples of& nbsp;this literature in clude Prow (1992), Kester (1992), and Porter (1992), while the supporting argument s are summarized in Maher and Andersson (1999) and Tsuru (2000). More recently, h owever, the weight of opinion has swung strongly in favor of the idea that capital mar kets have decisive comparative advantages over banks and other financial intermediar ies as optimal monitors and financiers of a nation's corporate life. This reasssment h as been driven in part by the obrvation, discusd at length above, that capital marke ts have been prospering relative to banks for many ;years now. The repetitive nature--and massive costs--of banking cris in developing and developed countries alike has also convinced many obrvers that banks are inherently fragile institutions, who rol e in corporate finance should be minimized as much and as quickly as possible (Econ omist (1997, 1999)).
b. The Rapid Growth in Stock Market Capitalization and Trading V olume Since 1983 From 1983 to 2000, this was a period of very rapid growth in the capitalization of mar kets in every country except Japan. Total world market capitalization incread over te n-fold (to $ 35.0 trillion) between 1983 and
1999, and the total capitalization of the U S market incread almost nine-fold (from $ 1.9 trillion to $ 16.6 trillion) over the sa me period.
c. The Dramatic Growth in Securities Issuance V olume Since 1990
Another way of measuring the ri of capital markets is to examine whether their share of annual corporate financing activity has grown relative to that of other source s of funding. Security offerings by US issuers accounted for two-thirds of the global t otal throughout 1990-1999, that implies that non-US curities issues in cread from $ 191 billion in 1990 to $ 750 billion in 1998, and then to $ 1.19 trillion in 1999. The surge in non-US issuance volume in 1999 was largely due to the popularity of euro-de nominated bond issues, which actually exceeded&n bsp;dollar-denominated bond issu es for much of 1999.
d. The Phenomenal Growth in Venture Capital Financing in the United States One highly specialized, but extremely important type of financing has also grown ver
y rapidly over the past decade, and especially so since 1997. This is venture capital in vestment by US venture capital partnerships. The fund-raising patterns of the privat e equity investors are discusd in Gompers and Lerner (1998), and the competitive a dvantages of US venture capitalists
versus tho in other developed countries are desc ribed in Black and Gilson (1998).
e. The Surge in Mergers and Acquisitions Worldwide
The almost incredible increa in the total volume of merger and acquisition acti vity that has occurred since 1990. While takeovers have always played an important r ole in the United States, the ri in M&A (Merger and Acquisition) activity in Europe during the 1990s was even more dramatic. From less than $ 50 billion annually in the late-1980s, the total value of M&A involving a European target reached $ 592 billion in 1998, before more than doubling to $ 1.22 trillion in 1999--rivaling the US total. Th e global value of M&A activity in 1999 reached&n bsp;$ 3.4 trillion, an astounding 1 0% of world GDP.
Next I will document that share issue privatizations have truly transformed share ownership patterns of investors in many different countries.
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B. Privatization's Impact on Stock and Bond Market Development
We should be careful in inferring causation regarding privatization's impact on m arket growth, since a shift in ideology or some other exogenous political or economic change might have caud both the privatization and the overall boom.
a. Total Proceeds Raid by Privatization Programs人山人海自助餐团购
It is clear that national governments have been among the biggest winners from p rivatization programs, since the have dramatically incread government revenues, which is clearly one reason the policy has spread so rapidly. As mentioned above, Priv atisation International [Gibbon (1998, 2000)] reports that the cumulative value of proc eeds raid by privatizing governments exceeded $ 1 trillion sometime during the co nd half of 1999. As an added benefit, this revenue has come to governments without h aving to rai taxes or cut other public rvices.
b. Privatization's Impact on International Investment Banking All international invest ment banks compete fiercely for share issue privatization mandates, for two principal reasons. First, becau the offerings are so large and so visible--and are almost always designed to help promote the market's capacity to absorb subquent stock offerings by private companies--the are very prestigious mandates. To date, the large US and British brokerage hous have had the most success in winning advisory and underwri燕窝的功效与作用
ting mandates, though all countries that launch large-scale SIP programs tend to favor local investment banks as "national champions" to& nbsp;handle the domestic share tr anche. The con
d reason banks compete so fiercely for SIP mandates is becau they can be extremely profitable. In spite of the fact--documented by Jones, et al (1999) an d Ljungqvist, et al (2000)--that SIPs have significantly lower underwriting spreads tha n private ctor offerings, their sheer size and lack of downside price risk make them very lucrative for underwriters.
2. Will this growth continue throughout the 2000s?
As we indicated above, the global capital market has grown so rapidly in recent decad es cau of the privatizations ri. Privatizations incread the market liquidity. Now we have already stepped into the 21st century. I believe that the growth will continue f or the following reasons. First, most of the south-east Asia countries have recovered fr om the 1997 financial crisis. For the countries, they now have the capital to do busi ness. And they get back on the fast growing track. Second, by the end of 2001, worl d's biggest developing country, China, has ;entered the WTO (World Trade Organizati on). This is real great news. As we all know, today's China takes a rious position in world's economy. Its innovation and opening policy make china keep achieving high GDP growth rate. This drives the global capital market keep growing.
Summary and Conclusions
This essay examines the impact of share issue privatizations (SIPs) on the growth of world capital markets (especially stock markets). I begin by documenting the incre asing importance of capital markets, and the declining role of commercial banks, in co rporate financial systems around the world. I then show that privatization programs-- particularly tho involving public share offerings--have had a dramatic impact both o n the development of non-US stock markets and on the participation of individual and institutional investors in tho stock markets.
This has told the reason of the fast growth of global capital market. And then I su ccinctly indicated the continuance of the rapid growth, the great future.
The last but not the least is the recommendation. I can confidently asrt that, if e xecuted properly, a ries of share issue privatizations can indeed promote the growth of global capital market, which will yield economic and political dividends for many years to come. That means there is a need to encourage the development of SIPs in or der to gain growth of global capital market.
References
Dictionary of Business, Oxford University Press, ? Market Hou Books Ltd 1996 The Economist (April 12, 1997), "Fragile, Handle With Care: A Survey of Banking In Emerging Markets."
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The Economist (April 17, 1999), "On A Wing and A Prayer: A Survey of International Banking."
Gibbon, H., 1998, "Worldwide Economic Orthodoxy," Privatisation International 123, 4-5.
Gibbon, H., 2000, "Editor's Letter," Privatisation Yearbook, London, Thomson Financ ial, 1.
cctv英语Gompers, P. and J. Lerner, 1998, "What Drives Venture Capital Fundraising?" Brooki ngs Papers On Economic Activity--Microeconomics, 149-192.
Jones, S.L., W.L. Megginson, R.C. Nash, and J.M. Netter, 1999, "Share Issue Privatiz ations As Financial Means To Political and Economic Ends," Journal of Financial Eco nomics 53(2), 217-253
Kester, W.C., 1992, "Governance, Contracting and Investment Horizons," Journal of Applied Corporate Finance 5(2), 83-98.
Ljungqvist, A.P., T. Jenkinson and W.J. Wilhelm, Jr., 2000, "Has the Introduction of B ookbuilding Incread the Efficiency of International IPOs?" New York University W orking Paper.
校正系数Maher, M. and T. Andersson, 1999, "Corporate Performance: Effects On Firm Perfor mance and Economic Growth," OECD Working Paper (Paris).
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Prow, S., 1992, "The Structure of Corporate Ownership in Japan," Journal of Financ e 47(3), 1121-1140.
Porter, M.E., 1992, "Capital Choices: Changing the Way America Invests in Industry," Journal of Applied Corporate Finance 5(2), 4-16.
