matias braun - the development of bond markets - asia vs. latin america

8/2/2019 Matias Braun - The Development of Bond Markets - Asia vs. Latin America

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The Development of Bond Markets:

Asia vs. Latin America

Matías Braun Ignacio BrionesUniversidad Adolfo Ibáñez Universidad Adolfo Ibáñez

UCLA Anderson School of Management

(Draft version 1.0, December 2006)



1.1.1.1. IntroductionIntroductionIntroductionIntroductionAn extraordinary amount of research has been conducted on the determinants and

consequences of the development of banking systems and stock markets in the last 10years 1. This contrasts sharply with the limited attention the development of corporatebond markets has received, despite its enormous growth during the past decade. Twomain reasons for this phenomenon can be given. First, research on the issue of financialdevelopment has advanced under the presumption that the internal/external financingmargin is critical for the understanding of its consequences. Given that for the vastmajority of firms external finance takes the form of bank credit this has led to theidentification of financial development with bank system development on relevancegrounds. The second reason has been lack of data. The small amount of researchconducted so far has focused primarily on the development of markets for bonds issuedby the public sector where data are more plentiful 2 . Important questions remainunanswered.

This paper tries to bridge these gaps in the literature. To do this we put together andanalyze data on a large cross-section of countries to study the determinants of thedevelopment of bond markets. Importantly, we do not just focus on size when referring todevelopment, but consider this as a multi-dimensional concept encompassing a number ofcharacteristics of the market, the issuers, and the instruments. The potentialdeterminants we consider are grouped in three categories: general economic conditions,determinants of financial development more generally, and determinants that are specificbond markets.

Among others we are able to address issues such as the degree of complementaritiesbetween different financial markets, the extent to which government bonds crowd-outprivate ones, the way the composition of markets varies with development, the role ofgeneral economic development and stability, the impact of property rights andcontracting institutions, and the importance of information. With respect to determinants

that are more peculiar to bond markets we explore the role of fixed setup costs andmarket size, the importance of foreign and institutional demand, and the role of supply.

A number of novel results come from this analysis. Although bond markets have beengrowing very fast relative to the economy, they are still not particularly large whencompared to the size of the banking system. Activity is highly concentrated in a few welldeveloped countries, and in government and financial institutions instruments. There isample variation in the size of these markets even after accounting for differences inincome per capita.

A well developed bond market is characterized by a large size relative to GDP in allmarket segments, a relatively stable composition between private and public issuers, andan increasing importance of financial institutions vis- à -vis non-financial corporations.The fraction of issues done in the issuers’ currency, the average maturity and principalamount of the instruments, the extent to which bonds are rated (and rated as investmentgrade), and the ability of unlisted firms to access the market all seem to be valid andconsistent measures of development as well Finally crowding out between public and



for private ones. In contrast to what is found when explaining banking sector and stockmarket development, the quality of property rights and contracting institutions and the

availability of information do not explain very well the development of bond markets. Ifanything, they have a relatively small impact on the corporate component. Banking sectordevelopment and bond market development seem to be complementary, particularly sofor the private, non-financial segment. Consistent with crowding-out, larger governmentmarkets appear to reduce the share of corporate bonds in the total stock. We only findmoderate country size effects for the corporate stock, although the size of the principalis strongly affected by it. Capital account openness seems only to benefit thegovernment. Far from representing increased demand for corporate bonds, it appears tobe associated with issuers substituting domestic markets in favor of the international one.The importance of institutional investors is positively correlated with the development ofbond markets, and the maturity of the issues. Firm characteristics appear to matter onlyfor the type of instrument (maturity and size).

While both Asian and Latin American markets lag behind those of theindustrialized world, they are roughly similar among them in terms of a large set ofindicators such as its market size, its public/private composition and the currencydenomination of bonds issued locally. The small overall size of bond markets in the tworegions is almost entirely due to the small size of the government segment. The stock ofcorporate bonds to GDP is not significantly smaller than that of developed countries ineither of the regions. It is, in fact, significantly larger in Asia. The reasons behind thedifferences between Asian and Latin American bond markets and their industrialcounterparts are not the same. For the government segment, poor development andstability indicators are behind Asia ’s backwardness, while bond market-specifics are thecause for Latin America ’s. The relatively large corporate segment in Asia can be mappedto strong bond market-specifics. Short maturities seem to be the response of acombination of factors. Finally, poor investor protection and inadequate information are

almost never a big part of the picture.The next section presents an overview of bond markets around the world and put

their size into context with the rest of the financial sector. We also present our basicindicators of bond market development and explore how they correlate with each other.Section 3 contains the basic multivariate results regarding the determinants of the cross-country variation in the development of bond markets. The recent evolution of thedifferent market segments is also analyzed. In section 4 we position Latin America andAsia in the world context, and determine the extent to which the main drivers of

development also explain the current state of their bond markets. Section 5 concludes.

2.2.2.2. Corporate Bond Markets Around the WorldCorporate Bond Markets Around the WorldCorporate Bond Markets Around the WorldCorporate Bond Markets Around the World – –––an Overviewan Overviewan Overviewan Overview

2.1 The Sample Our flow data on bonds come primarily from SDC Platinum which records bond



correspond to developed countries, we are still left with 7,536 observations in lessdeveloped markets. We compute country aggregates from these data and focus on this

cross-sectional variation.The flow data are complemented with information on stocks outstanding recordedby the Bank of International Settlements. General country and economic data comeprimarily from World Bank’s World Development Indicators and IMF’s InternationalFinancial Statistics.

2.2 Bond Markets: Dimensions and Development a. Bond Markets

Table 1 presents the basic data on the stock of domestic debt securitiesoutstanding across 46 countries. A number of facts stand out. First, the size of thismarket is not particularly large: as of December of 2004 the amount of domestic bondsoutstanding in all markets totaled 43.7 trillion dollars, equivalent to around one fourth ofthe world’s GDP, 30% of the total stock market capitalization, and 17% of the domesticcredit provided by banks. Although as a source of funds for firms bonds are much moreimportant than equity -of all the capital raised by firms in the 1991-2001 period, morethan 82% corresponded to non-convertible debt 3,- bank debt is by far the largestcomponent of external finance.

Second, bond issuance is highly concentrated in a few highly developed markets.The U.S. and Japan alone account for almost two thirds of the stock, while the C4concentration ratio reaches 74%. On the other hand, the group of emerging countriesrepresents only 6.7% of the total, half of it in the East Asia and Pacific (EAP) Area. Withjust $652 billion outstanding Latin America and the Caribbean (LAC) account for a mere1.5% of the total, while Chile ($41.8 billion) does not even reach 0.1%. This highconcentration is not peculiar to the bond market, but common to all financial markets and,to a lesser extent, to economic activity in general 4.

Third, for the most part, this is a market for sovereigns and financial institutions;half the overall stock corresponds to government-issued bonds 5, and three fourths of theprivate stock to financial-sector issuers. This leaves non-financial corporate issuerswith only around 12% of the total ($5 trillion). With the exception of EAP, the share ofthe public sector is much larger in the developing group (68%), particularly in LAC (79%)and Eastern Europe (EE) where there is almost no private market to speak of (97%).Financial institutions are more important relative to the corporate sector in developedmarkets where the stock of the former is 3.5 times that of the latter. The ratio is less

than 2 elsewhere.Fourth, even after accounting for differences in GDP there is ample variationacross countries in the size of bond markets. The ratio of bonds outstanding to GDPaverages 58% for the entire sample, with a standard deviation of 40%. The coefficient ofvariation (0.7) is similar to that of bank debt (0.6) but somewhat lower than the one formarket capitalization (1.0). At 20 and 7%, the ratios for financials and corporates presentmuch more variation than the stock of government bonds (1 1 1 1 and 0 6 respectively)



relative to the economy than in LAC and EE (38% vs. 25%), particularly with respect tocorporate issuers where the ratio is 4 times larger than in LAC. While corporate bonds

represent 10% of GDP and 17% of the total stock in EAP they account for only 2.4% ofGDP and 7% of the total in LAC.Finally, the importance of bond markets is growing fast relative to the economy.

The nominal dollar stock has been growing annually by 7.2% during the last decade or so.This is only slightly higher than the growth rate of bank debt in the sample (6%), though.Developing countries seem to be catching up to the developed world by growing twice asfast. The composition of issuers seems more or less stable in the developing group butdecreasing in the share of public bonds in the group of industrial countries. Relative tothe economy bond markets have grown by a third during the 1995-2003 (from 53 to70%), but the corporate segment has doubled in size from 5 to 10% of GDP.

The last two columns of Table 1 present data on domestic credit provided bybanks and stock market capitalization for the sample countries. The difference betweendeveloped and developing countries is significantly smaller here than for the bondmarket. Relative to LAC, EAP countries perform even better in these measures. Indeveloped countries the stock of bonds represents on average 42% of total externalfinance (the sum of the three components mentioned). The figure drops to 31% in LACand only 18% in EAP. Although Latin America lags behind the Asian economies in termsof the size of its bond market, relative to its underdevelopment in other areas of thefinancial system the distance is smaller. Less developed countries in general, though,display particularly small bond markets relative to the distance they exhibit to theindustrial economies in terms of the rest of the financial sector.

The flow data we present in Table 2 correspond to bond issues by the privatesector between 1995 and 2004, and include all countries for which we have at least oneissue in the local market. The picture is consistent with that of the stock data in that

most of the activity in the bond markets concentrates in the developed world. The flowsample contains more than twice as many LAC countries as in the stock data. Both thetotal number and amount of issues in LAC are now much more similar to the figures ofEAP. Coverage for Eastern European countries is limited.

Overall, when considering value, 61% of bonds are issued in the country wherethe issuing firm is located (i.e. local bonds). The rest corresponds to both issues in theinternational market and issues in countries different than those of the issuers. Asomewhat lower share of local bonds in developing countries (56%) is explained by the

much smaller figure in EAP. In this respect, Latin America does not seem different thanthe developed world.

b. InstrumentsAs can be seen in Table 3, the average principal of bonds is $112 million,

although it is much smaller in the developing world ($45) than in industrial countries($198) A large part of this difference is probably explained by the difference in the size



share of own-currency issues than LAC (100% vs. 60%). This is true when consideringall bonds as well.

The average maturity of the local private bonds in the sample is 7.3 years in thedeveloped world and just 5 in the developing markets. Maturities are the same in LACand EAP, but lower in EE. The share of bonds with maturities longer than 5 years showsbasically the same. These averages mask considerable variation within these groups.While average maturity in Chile is 13.7 years (the highest in the entire sample),maturities in Guatemala and Venezuela do not even reach two years. Maturities in theU.S. are not particularly large.

With the caveat that data are not as plentiful as for the other indices, it can besaid that yields to maturity are higher in the developing countries (6.6 vs. 5.7 fordeveloped ones). The spreads –measured with respect to the most similar public bondavailable in the market- are on average just over one percentage point and also higher indeveloping markets (177 vs. 85bps).

c. IssuersFinancial institutions represent the lion share of issues in the industrial countries,

and particularly so in the U.S. (81 and 90% respectively). Non-financial corporate firmsaccount for around 45% of issues in less developed countries, a figure that does not varymuch across the subgroups.

The majority of bonds are issued by firms that are publicly-listed (63% onaverage), particularly in the developing world and LAC. Of those that are not, almost allof them correspond to subsidiaries of listed firms. We unsure whether this is driven bythe way SDC Platinum selects its sample or not, so we would not venture aninterpretation.

In terms of risk, most bonds are investment grade both in industrial anddeveloping countries. It has to be mentioned, though, that most bonds in our sample are

either non-rated or do not record that information.The firms that issue local bonds are quite large, with $7.8 billion in assets and

$7.3 billion in revenues. They are, however, considerably larger in more developedcountries. Among the emerging markets, issuers tend to be considerably larger in LACthan in EAP, particularly in the case of sales.

Firms raise large amounts relative to their assets when issuing bonds. Onaverage, the principal represents around 30% of assets. This figure overestimates theimportance of bonds since we are using book assets. The magnitude is not likely to be

very large since firms that issue bonds do not typically exhibit large market to bookasset ratios. EAP looks similar to the developed countries, while LAC shows a muchsmaller ratio.

Finally, issuing firms are on average healthy in financial terms, with bookleverage of around 55% and a large fraction of long-term debt (84%). Interestingly, theredoes not seem to be important differences on these across countries.



and currency of issuance, maturity, rating, and principal size, and the listed status of theissuers.

Before trying to identify the determinants of bond market development we studythese variables in order to determine whether the size of the market is importantlyrelated to these other dimensions. In Table 4 we test precisely this by looking at thepairwise correlations across markets (and their significance level). The ultimate goal isto come up with a set of stylized features that characterize well developed bond markets.The first six measures are constructed from cross-country stock data compiled by BIS,while the rest are aggregated from our SDC flow data.

The first thing to notice is that the size of the different sub-markets relative to theeconomy (government, private, corporate and financial) is strongly and significantlycorrelated across countries. It doesn’t appear as if the private/public composition of themarkets varies much with overall size. In fact, the share of private bonds in the totalstock is almost orthogonal to the overall size of the market. Although bigger markets donot have a larger share of private bonds, the fraction of private bonds is significantlynegatively correlated to the size of the public market. This is consistent with the size ofthe overall market being constrained by demand and the existence of crowding-outbetween the public and private segments. It is not, on the other hand, consistent with thenotion that large public markets are required for having sizeable private ones.

Interestingly, there seems to be important variation across countries in terms of thesize of the financial issuers segment. Indeed, the fraction of bonds issued by financialinstitutions increases markedly (and significantly) with the size of each of the segments.Then, a mayor difference between large and small bond markets is that in large marketsissuers tend to be disproportionably financial institutions. It does not look like bankswould be threatened by the development of bond markets. Contrary to thedisintermediation view, it seems to be the case that banks and other lenders fundthemselves in arms’ length markets to lend to agents that do not have access to this kind

of financing. As the bond market develops they are more able to do so. This implies thatan important part of any positive effect the development of bond markets may have interms of easing financial constraints will come through increased availability of funds tofinancial institutions. Far from being substitutes, bank and arms length lending seem tobehave as complements. The policy implications are critical: developing bond marketswill have a limited impact if the banking system does not work properly.

The currency denomination of bonds is all but entirely determined by the marketwhere the instrument is placed; issuing bonds in a currency different from the used in the

market of placement is not at all widespread. This argues in favor of local factors beingan important determinant of bond market development. Furthermore, it suggests that theextent of currency mismatches will be a function of the ability of agents to issuesecurities in their own market. To the extent that financial institutions also play animportant role in the intermediation of the proceeds from bond issues, this will apply notonly to the firms able to issue in arms length markets but more generally throughout theeconomy From the standpoint of investors hedging possibilities seem to be quite limited



the ability to issue in one’s own currency improves, issuers tend to favor own currencyliabilities over the foreign market-currency alternative.

One can also see in the Table that the stock and flow measures of the size of themarket are not incompatible. The stock and the flow of corporate bonds to GDP arestrongly correlated, both when we account for differences in the average maturity ofcorporate bonds and when we do not. The number of corporate bond issues to populationalso appears to be consistent with the other measures of the size of the corporatemarket.

The average maturity of corporate bonds is positively and significantly related to thesize of the overall bond market and that of the government segment. It is howevernegatively correlated to the share of the non-financial, corporate issuers in the totalflow. As the size of the non-financial corporate segment grows, the average maturityincreases but not significantly so in statistical terms. Mechanically this is consistent withthe fact that both government and financial institutions bonds tend to be longer than non-financial corporate ones. Less directly, the fact that the government issues at longerterms can facilitate longer-term borrowing by corporations via a benchmarking effect.When one uses the share of issues that are in local currency as a measure ofdevelopment, the correlation between this and maturity is positive and significant.Maturity is also positively correlated to the share of bonds that are rated and the share

that is issued by unlisted firms.It is not unambiguous in theory that should happen with average maturity as markets

developed. On one hand, the ability of borrowing at longer terms can be thought of anindication that the sort of informational and agency problems that force borrowers toconstantly renew their obligations have been solved to a greater extent. This isconsistent with the significantly negative correlation between maturity and the share ofissuers that is not rated. On the other hand, and for the same reasons, as the marketdevelops the participation of smaller, more opaque firms is likely to increase. Short-term

debt is more likely to be optimal for these firms. Some of this seems to be going on in thedata since the share of issuers that are publicly listed is decreasing in the measures ofmarket size. Which of the two effects will dominate is not clear, but -although not alwayssignificantly so- average maturity seems to be on average positively correlated to othermeasures of development.

The share of issuers with investment grade rating increases significantly with thesize and currency measures 6. This could suggest that the average quality of issuers goesup with development; contradicting the view that development allows access to a broaderset of firms. This is not granted since the variable is significantly negatively correlated tothe fraction of the private market that is accounted for by non financial issuers. Iffinancial institutions have to keep a high rating by regulation this would explain thepattern mechanically.

The previous evidence does not clarify whether the quality of the marginal borrowergoes up or down with development. However, the fact that the share of unlisted issuersfalls with many of the other measures of development is indicative that access is



discriminating. Both pieces together would be consistent with the view that as the marketdevelops access broadens and therefore rating becomes more critical.

Finally, the size of the principal borrower goes up with most development indicators.Unfortunately we do not have enough cross-country variation in terms of the size of theissuing firms to allow us to extract conclusions about the importance of the bond marketto issuers relative to other sources of external finance. However, we later show that theaverage principal size is significantly correlated with the size of the average listed firm inthe country, and that this firm size does not increase markedly with other measures ofbond market development. Put together these facts suggest that issuing firms are able toraise relatively more funds in more developed bond markets.

To summarize, the results in this section suggest that a well developed bond marketis characterized by a large size relative to GDP in all market segments, a relatively stablecomposition between private and public issuers, and an increasing importance of financialinstitutions vis- à -vis non-financial corporations. The fraction of issues done in theissuers’ currency, the average maturity and principal amount of the instruments, theextent to which bonds are rated (and rated as investment grade), and the ability ofunlisted firms to access the market all seem to be valid and consistent measures ofdevelopment as well. Finally, crowding-out between public and private instruments

appears to exist.

3.3.3.3. Development of Corporate Bond MarketsDevelopment of Corporate Bond MarketsDevelopment of Corporate Bond MarketsDevelopment of Corporate Bond Markets: Determinants: Determinants: Determinants: Determinants

In this section we setup an empirical framework that will allow exploring thedeterminants of bond market development across countries. We consider broadcategories of determinants and then assess their validity empirically in a multivariate

setting. Using the same framework we explore whether the development of bond marketsin Latin America and Chile is accounted for the same explanatory variables that explainthe whole cross-country variation.

3.1 Empirical Framework We are particularly interested in determining how much of the variation we see

across countries can be explained just with the state of development of the economy, andvariables know to affect financial development more generally, as opposed to variablesthought to be peculiar to bond market development.

In terms of general economic conditions we use per capita GDP to proxy for theoverall state of economic development, and the rate of inflation and government balanceto assess the quality of the macroeconomic environment. Contracting institutions areproxied for by measures of the legal rights enjoyed by creditors, and the protection ofminority shareholders. Both property rights and contracting institutions have been shownto be particularly important for the development of banking sectors and stock markets as



information available with a measure related to the existence of credit bureaus (creditinformation) and the degree to which listed companies disclose relevant information toshareholders (shareholder disclosure).

Regarding determinants that are peculiar to the bond market we consider fourmain categories: the degree of development of other financial markets in the economy,the scale of the economy, factors associated with the demand of securities, and supplyfactors.

The degree of development (size and efficiency) of other financial markets ispotentially quite relevant for the development of bond markets. One can think of twopossibilities here. The view that holds that the different markets are substitutes to eachother because they serve the same basic function would predict that large equity andstock markets will result in relatively small bond markets. From the standpoint of theinvestors large public debt markets would imply small private ones. Alternatively, onewould expect a positive relationship if the markets complement each other. Thecomplementary can have many sources, such as the importance of benchmarking whenconsidering the effect of the existence of public bond markets, the information generatedby the stock market, and the ability of intermediaries to tap into bond markets forfunding, for example. Here we consider measures of the size of the banking system, the

stock market, and the government and financial components of the bond market. We alsoinclude measures of the degree of efficiency with which these markets operate (banks’spread and overhead costs, and stock market turnover). The turnover variable can alsobe though of being a proxy of (hard to measure) liquidity in the bond market. Liquidity, inturn, will affect the demand of securities by investors.

There are a number of activities necessary for the functioning of markets that arelikely to be independent of its size, such as the design of regulatory framework and basicinformation gathering and management. Insofar these represent fixed setup costs the

existence of a market will depend on the size of the economy. We measure this size withtotal GDP. The extent to which foreigners are able to invest in a given market (capitalaccount openness, and exchange rate fixity) can modify the actual scale of the market.

Local demand is measured with the importance of institutional investors (theassets of pension schemes and insurance companies).

Supply factors include the tax rate which should affect the incentives to issuedebt over equity under the trade-off theory of capital structure, and the profitability ofpotential issuers (return on assets of listed firms in the country) which should have anegative effect under the pecking-order and adverse selection theories. We also accountfor the fact that fixed costs of screening and monitoring will make the chance of gettingaccess to arms-length markets dependent on the size of the firm. This size might varysystematically across countries and therefore affect the volume of the pool of potentialborrowers. We proxy these effect with the size of listed firms in the country (firstquartile in terms of sales).

In this preliminary exploration of the data the partial correlations documented



Table 4, Panel A provides with summary statistics of the data we use. The setcomprises data for as many as 46 different markets. Tables 5.1 through 5.7 present theresults for a subset of our bond market development indicators 10 . In order to avoidmaking inferences based on changing sample size, for each indicator we restrict theanalysis to the sample of countries for which we have data for all the independentvariables. The main results are summarized in Chart 1 which shows the R-squares of theregressions on each set of potential determinants separately (column 1), when included inaddition to development and stability indicators (column 2), and financial developmentdeterminants (column 3), and both together (column 4). Significance levels for F-test areincluded to the right of each column. Those corresponding to the first column testwhether each subgroup of determinants is jointly significant when regressed separately,while the one for the other columns test their incremental effect.

In order to assess whether the potential differences with previous results are duethe particular sample we run the general economic and financial determinantsregressions for the traditional Bank and Stock Market development measures (notreported). We found that the results generally were present in our sample: there was apositive effect of per capita GDP, a strong positive effect of creditor rights, and anegative effect of inflation. The information variables, although of the expected sign,were not particularly significant.

General Economic ConditionsPer capita GDP enters positive and very significantly when explaining the overall

size of bond markets (Table 5.1). This variable alone explains around 30% of the entirecross-country variation. The economic magnitude of the effect is large: doubling incomeper capita is associated with an increase in the stock of debt securities of 20 percentagepoints of GDP, roughly the difference between the size of the Argentinean and the Irishmarkets, and around 30% of the sample mean. Interestingly enough, this correlation is

much stronger in the public than in the private segment (Table 5.2), and especially strongand significant for the size of the financial institutions’ stock (not reported). The stock ofbonds issued by non-financial corporations appears to be unrelated to income per capita,as is its share in the total stock (Tables 5.3 and 5.4). The share of private flow accountedfor by non-financial issuers is, in fact, slightly negatively correlated to the overalldevelopment of the economy (not reported).

The share of issues that are placed in the market of the issuer and denominatedin its own currency appears to be unrelated to income per capita (Table 5.5). Averagematurity is relatively unaffected by economic development (Table 5.6).

Regarding the characteristics of the issuers more developed economies tend tohave a higher fraction of investment grade instruments, a lower share of unrated bonds, alower fraction of listed issuers, and larger average principal amounts (Table 5.7).

Although generally associated with lower levels of development when measuredwith size and composition indicators, inflation almost never enters significantly. Incontrast low government deficits seem unambiguously bad for the growth of the



there are two counterbalancing effects, especially in terms of government deficits. Onone hand, we have the classic negative effects of volatility from the standpoint ofinvestors (i.e. the demand side). On the other hand, deficits have to be financed and thebond market is typically an important part of the financing sources, particularly whenbank credit has been exhausted and access to international funds is restricted. Byincreasing the supply of instruments, deficits would have a positive effect on the size ofbond markets. In any case what is clear is that inflation and deficits should be associatedwith higher expected real rates of return for bonds, something that is likely to be thecase in practice.

As expected, average maturity tends to shorten in high inflation environments,though not significantly so. Inflation does not seem to have a strong effect on the qualityof issuers or the principal of the bonds issued. Lower deficits however tend to beassociated with a higher share of listed issuers as would be the case if governmentfinancing had a particularly negative effect on the availability of fund to very large firms(not reported).

The quality of property rights institutions is not robustly related to any of ourdependent variables. They enter significantly only when explaining the size ofgovernment bond markets, but even there the direction of the effect is not clear. This isin stark contrast to what the literature on financial development has found with respect to

banking systems and stock markets. While the degree of protection of creditors tends tobe negatively associated to the size of the public segment, it seems only weaklypositively related to that of the private market. The information availability variables (theone related to public markets) are positively related to our measures of private bondmarket development, and negatively related to the public segment.

Bond Market-Specific Determinants

Our first set of variables is related to the size of the other segments of thefinancial market. The basic question is about whether these markets are complements orsubstitutes to the bond market. The size of the banking system is positively (andsignificantly) related to the size of private bond markets, and particularly the non-financial component. The economic magnitude of the effect is quite large; a one standarddeviation increase in private credit to GDP is associated with almost doubling the size ofthe private bond market (roughly the distance between Chile and Denmark), and aincrease in the share of the non-financial corporate stock from 7% to 12%. In contrast,the size of the overall market and that of the government and financial components, andthe other development measures appear not to be significantly correlated to the size ofthe banking system. Although generally positively correlated with the bond marketdevelopment measures, the size of the stock market never enters significantly.

In unreported regression we found that the effect of the efficiency of the bankingsystem is not clear. The size and composition of the market is not very related to any ofthe efficiency measures Higher spreads are associated to longer maturities and a smaller



regressions. Foreign access seems to matter little. Capital account openness seems onlyto benefit the government. Interestingly, many times the effect of capital accountopenness is not positive but negative, suggesting that greater capital movement freedomcan cause corporations to leave underdeveloped domestic markets in search for betterterms in more developed ones. The foreign demand cannot be rescued by controlling forthe degree of exchange rate fixity.

Institutional demand in the form of pension funds and insurance companies ispositively correlated to the size of bond market (Table 5.1). As expected from their long-term pattern of investment, average maturity is positively correlated to the importance ofinstitutional investors in the economy.

Regarding supply and consistent with the trade-off theory high marginal tax ratesin the corporate sector are positively associated to the overall stock of bonds. Theidentification, however, seems to be coming from the size of the government and not ofthe corporate segment. This might just be because more taxing governments tend to belarger. To the extent that larger firms have a lower probability of going bankrupt, thepositive effect of the average size of the listed firm on the principal amount would beconsistent with the trade-off theory. Profitability doesn’t have a strong positive impacton our development variables, not supporting the pecking-order view.

To summarize the results of this section, we can say that the most significantdeterminant of the development of bond market is the level of general economicdevelopment, particularly so for the private segment. Macroeconomic volatility seems notto matter much, although maturities shorten significantly in high inflationaryenvironments. In contrast to what is found when explaining banking sector and stockmarket development, the quality of property rights and contracting institutions and theavailability of information do not explain very well the development of bond markets.Banking sector development and bond market development seem to be complementary,

particularly so for the private, non-financial segment. The existence of fixed setup costsdoes not seem to be particularly important; we do not find strong country size effects.Capital account openness far from representing increased demand appears to beassociated with issuers substituting domestic markets in favor of the international one.The importance of institutional investors is positively correlated with the development ofbond markets, particularly the non-financial private component. Elements related to thesupply of instruments do not seem to be critical, except for the size of the issue.

3.3 The Evolution of Bond Markets During the last ten years the government segment grew on average by 8.3

percentage points of GDP, faster than the rate of around 5.5 points recorded by theprivate components. With respect to mean reversion it is quite strong in the governmentpiece: a one standard deviation larger initial stock is associated with around 5 percentagepoints of GDP smaller change in the stock. The size of government bond markets relativeto GDP has been converging across countries quite fast Quite the opposite is true with



4.4.4.4. Development of Corporate Bond Markets: Latin America andDevelopment of Corporate Bond Markets: Latin America andDevelopment of Corporate Bond Markets: Latin America andDevelopment of Corporate Bond Markets: Latin America and Asia AsiaAsiaAsia

4.1 Markets, Instruments, and Issuers Are Latin American and Asian markets different from the developed ones? Are

they different between them? As can be seen in Figure 1, bond markets are smaller thanthose in industrial countries both in non-developed Asia and Latin America. On average,domestic debt securities in our Asian and Latin American samples represent almost 38%of GDP and 25% of GDP, respectively. The largest bond markets for the former groupcorrespond to Korea (50% of GDP) and Malaysia, while Chile (50%) and Brazil (50%)leads for the latter. These figures are quite below the ones of the developed countries(almost 90% of GDP) but are not statistically different between Asia and Latin America.

This is largely the result of the financial and the government components beingmuch smaller than in the industrial world. In contrast, the corporate segments are largerin both regions with respect to the total stock, and also en relation to the economy in thecase of Asia. Government bonds are still relatively more important in Latin Americarepresenting 70% of the total amount outstanding in comparison to 50% for Asia and thedeveloped economies. There is important heterogeneity, however. Government bonds are

almost the only fixed income securities in India, Indonesia, Pakistan and the Philippines,and Colombia.

Corporate bonds represent the lion share of the private fixed securities in Korea,Malaysia and Thailand but are quite irrelevant in the remaining Asian countries. Onaverage, the non financial sector accounts for almost half of the total amount of privatebonds issued in Asia as compared to 40% in Latin America and 20% in the developedworld. However, the figures for Asia and Latin America are not statistically different.

The average maturity of corporate bonds issued in Asia is 5 years as compared to6 years in Latin America, and 7.5 years in the developed countries. With the exception ofChile, a country having longer maturities than almost any country in the world (close to14 years), maturities are quite homogeneous within the countries belonging to eachregion. Indeed, we can not reject the null hypothesis that maturities in Asia and LatinAmerica are the identical. The same conclusion arises if we look at the fraction ofcorporate bonds with maturities over five years. While 33% of the corporate bonds inLatin America and 25% in Asia are classified in this category, the difference is notstatistically significant.

In Latin America, 60% of corporate bonds are issued in the domestic currency.The highest values correspond to Colombia, Mexico and Chile (over 80%) while thelowest corresponds to Argentina where only 20% of corporate issuances are thusdenominated. Nearly 80% of corporate bonds in Hong Kong, India, Malaysia, Singaporeand Thailand, are denominated in local currency. Still, foreign currency is the rule inKorea and Indonesia All in all Asia and Latin America are not statistically different in



A dimension in which Asia and Latin American countries differ significantly isregarding the principal of the typical corporate bond issued. The mean principal in Asia isUSD 72 millions, compared to just USD 48 million in Latin America, and almost USD 200million in the developed world. The difference between Asia and Latin America is evenhigher when controlling for the total assets of the issuer: while in Asia the mean principalrepresents nearly 30% of their assets in Latin America the ratio is closer to 10%.

With respect to the issuers, all the groups are similar in terms of the proportionof issuers that are listed: 70% in Latin America v/s 65% in Asia, and 60% in the OECDeconomies. According to the Standard and Poor’s risk classification, more than 85% ofthe corporate bonds in Latin America are investment grade. This proportion is similar tothe one exhibited in developed countries and higher to the one of Asia. However thisinformation should be interpreted with care. Indeed both in Latin America and Asia, morethan 80% of the corporate bonds issued are unrated by Standard and Poor’s.

The limited number of observations we have for firm financial indicators makes itdifficult to assess whether corporate issuers are different in terms of their leverage,revenues and profits. Average values show that the (book) leverage ratio of the issuersin Asia is roughly similar to the one exhibited in Latin America and the developed world(55%, 50% and 58%, respectively). The same holds when looking at the ratio of long term

debt to total debt of the issuers, which is around 80% in Latin America, Asia and theindustrialized countries. Both the assets and revenues of a typical issuer in the developedcountries are significantly higher than the ones we observe for Asia and Latin America.Bond issuing firms in Asia appear to be twice as large as the ones in Latin Americanwhen measured by assets, but seem very similar when size is measured with sales.

Summarizing, while both Asian and Latin American markets lag behind those ofthe industrialized world, they are roughly similar among them in terms of a large set of

indicators such as its market size, its public/private composition and the currencydenomination of bonds issued locally. The only dimensions in which Asia and LatinAmerica are statistically different are the proportion of corporate bonds issued abroadand the principal of a typical corporate bond issued. Judging from the size of thecorporate segment, the principal to assets ratio, there is some indication that firms face amore developed bond market in Asia than in Latin America.

4.2 Accounting for the differences with the developed countries In Chart 2 we try to determine what accounts for the differences between the

bond markets in Asia and Latin America with respect to the developed economies. Foreach dimension we ask if the differences are significant, and see whether thesedisappear when we control for the degree of development and stability, the determinantsof financial development more generally, and for bond-market specific issues. Figure 2puts this in graphical terms by adding up the contribution of each set of determinants.

The total stock of bonds to GDP is significantly smaller than in developed



With respect to the size of the government segment, legal protection andinformation play a secondary role in both groups. The problems in Latin America seem tobe rooted in the small size of their economies, poor integration to international capitalmarkets, and the lack of a large institutional investor base. As before, for Asia the issueappears to be much more related to their poor development and stability indicators,though the bond market-specifics also explain part of the difference.

The stock of corporate bonds to GDP is not significantly smaller than that ofdeveloped countries in either of the regions. It is, in fact, significantly larger in Asia.While the development and stability, and protection and information determinants areroughly the same as in the OECD, the bond-specific fundamentals are much stronger. Asfor Latin America, the model is unable to explain the relatively large corporate stock: asomewhat smaller stock was expected on the basis of poor bond-specific fundamentals.The share of corporates in the total stock of bonds is larger in both regions, althoughonly significantly so in Asia. In both cases the reasons seem to be shared among all thedeterminants.

The share of the corporate bonds that is issued in the local market is onlyinsignificantly smaller from that of the industrial countries. Both for Asia and LatinAmerica this is despite and not because the fundamentals.

The significantly shorter maturities found in Asia are the outcome of weaker

fundamentals in similar proportions. Maturities were not expected to be any shorter inLatin America than in the OECD. To the extent that they are, it is due to poordevelopment and stability, and bond market-specific fundamentals, and despite adequateprotection and information. Finally, small principals both in Asia and Latin America aremostly due to small market size, high profitability, and small companies.

Summarizing, the reasons behind the differences between Asian and LatinAmerican bond markets as compared to the industrial counterparts are not the same. For

the government segment, poor development and stability indicators are behind Asia’sbackwardness, while bond market-specifics are the cause for Latin America ’s. The

relatively large corporate segment in Asia can be mapped to strong bond market-specifics. Short maturities seem to be the response of a combination of factors. Finally,poor investor protection and inadequate information are almost never a big part of thepicture.

5.5.5.5. ConclusionConclusionConclusionConclusion

We provided a number of stylized facts regarding the development of bondmarkets in this paper. Prime among them is that there is significant cross-countryvariation in the size of bond markets, and that this variation maps into a number ofcharacteristics associated with the composition, and characteristics of the instrumentsand issuers Together these features allowed us to have a better grasp of what we mean



in particular. Legal protection and adequate information also matter but to a lesserextent. The characteristics of the instruments are much more related to the existence ofa sizeable institutional demand (maturity) and the characteristics of the issuers andmarket scale (size of principal).

Overall, Latin American and Asian markets are significantly smaller than theirdeveloped counterparts. This is almost entirely due to the small size of the governmentsegment. The stock of corporate bonds to GDP is not significantly smaller than that ofdeveloped countries in either of the regions. It is, in fact, significantly larger in Asia. Thereasons behind the differences between Asian and Latin American bond markets andtheir industrial counterparts are not the same. Finally, poor investor protection andinadequate information are almost never a big part of the picture.



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Diamond, D.W. (1991). “Monitoring and Reputation: The Choice between Bank Loans andDirectly-placed Debt,” Journal of Political Economy 99, 698-721.

Eichengreen and Luengnaruemitchai (2004), "Why Doesn't Asia Have Bigger BondMarkets?". NBER Working Paper No. W10576.

Guiso, Luigi; Sapienza, Paola and Zingales, Luigi., 2004. "The Role of Social Capital inFinancial Development," The American Economic Review, 94(3), pp. 526.

Henderson, Jegadeesh, and Weisbach (2006), “World Markets for Raising New Capital.”Journal of Financial Economics forthcoming.

Holmstrom, B. and Tirole, J. (1997). “Financial Intermediation, Loanable Funds, and theReal Sector,” Quarterly Journal of Economics 112(3), 663-691.

Impavido, G., A. Musalem, and T. Tressel (2001), “Contractual Savings and Banks’Stability and Efficiency,” World Bank Working Paper.

La Porta, Lopez de Silanes, Shleifer, and Vishny (1997), “Legal Determinants of ExternalFinance.” Journal of Finance 52, 1131-1150.

La Porta, Lopez de Silanes, Shleifer, and Vishny (1998), “Law and Finance.” Journal ofPolitical. Economy, December.

Leland, H.E., and Pyle, D.H. (1977). “Informational asymmetries, financial structure, andfinancial intermediation,” Journal of Finance 32, 371-387.

Levine (2004), "Finance and Growth: Theory and Evidence.” NBER Working Paper No.W10766.

Myers and Majiluf (1984), "Corporate Financing and Investment Decisions when FirmsHave Information that Investors do not have." Journal of Financial Economics, 13,187-221.

Stulz, Rene M. and Rohan Williamson, 2003. “Culture, Openness, and Finance,” Journal ofFinancial Economics 70(3), 313-349.



20

Chart 1. Bond Market Development: Summary of ResultsChart 1. Bond Market Development: Summary of ResultsChart 1. Bond Market Development: Summary of ResultsChart 1. Bond Market Development: Summary of Results

w/A w/B w/A&B w/A w/B w/A&B w/A w/B w/A&B w/A w/B w/A&B

A Development & Stability 0.31 ** 0.17 0.09 0.13-Economic Development 0.23 *** 0.08 0.01 0.02-Macro Stability 0.25 0.07 0.09 0.06

B Financial Development Determinants 0.09 0.39 0.15 0.36 0.21 0.27 0.25 0.39 *-Information 0.03 0.04 0.11 0.16 *-Legal Protection 0.01 0.03 0.17 * 0.07

C Bond Market-Specific 0.45 0.52 0.35 0.59 0.40 0.47 0.57 0.64 0.57 ** 0.57 * 0.64 * 0.67 0.58 ** 0.69 ** 0.66 * 0.77 *

-Other Markets 0.14 0.34 0.20 0.43 0.00 0.19 0.15 0.37 0.39 *** 0.42 *** 0.46 ** 0.49 ** 0.14 0.28 0.37 0.52 *Banks 0.13 * 0.00 0.39 *** 0.12 *Stock Market 0.03 0.00 0.15 ** 0.02

-Scale 0.30 ** 0.37 0.35 * 0.47 0.17 0.21 0.32 0.37 0.02 ** 0.18 0.37 0.45 0.11 0.27 0.46 * 0.52Economy Size 0.15 ** 0.05 0.01 ** 0.03International Financial Integration 0.17 * 0.12 0.00 0.11

-Local Demand/Institutional Investors 0.15 ** 0.34 0.25 ** 0.43 0.03 0.18 0.23 0.37 0.09 0.12 0.21 0.27 0.00 0.14 0.26 0.42-Local Supply (firm characteristics) 0.17 0.36 0.26 0.42 0.24 * 0.33 0.37 * 0.46 0.06 0.14 0.22 0.30 0.11 0.22 0.30 0.42

Obs 30 30 29 29

w/A w/B w/A&B w/A w/B w/A&B w/A w/B w/A&B

A Development & Stability 0.17 0.13 0.26 *-Economic Development 0.01 0.04 0.06-Macro Stability 0.17 0.11 0.18

B Financial Development Determinants 0.16 0.37 0.16 0.35 0.12 0.35-Information 0.03 0.11 0.10-Legal Protection 0.03 0.05 0.09

C Bond Market-Specific 0.32 0.45 0.51 0.66 0.27 0.44 0.63 0.71 0.59 * 0.63 0.62 0.78-Other Markets 0.00 0.18 0.22 0.41 0.00 0.17 0.16 0.36 0.01 0.27 0.16 0.35

Banks 0.00 0.00 0.00Stock Market 0.00 0.00 0.00

-Scale 0.15 0.26 0.30 0.48 0.01 0.29 0.19 0.53 0.36 ** 0.42 0.41 * 0.48Economy Size 0.07 0.00 0.17 **International Financial Integration 0.02 0.01 0.11

-Local Demand/Institutional Investors 0.00 0.19 0.19 0.39 0.06 0.16 0.40 ** 0.45 * 0.01 0.26 0.17 0.35-Local Supply (firm characteristics) 0.12 0.25 0.32 0.48 0.02 0.16 0.17 0.41 0.38 ** 0.45 0.40 * 0.49

Obs 25 25 25

Share Corporate in Own Market Maturity Size of Issue

Total Stock to GDP Government Stock to GDP Corporate Stock to GDP Share Corporate in Total Stock

Significance level: *** 1%, ** 5%, * 10%.



Chart 2. Bond Market Development in Asia and Latin America: Summary of ResultsChart 2. Bond Market Development in Asia and Latin America: Summary of ResultsChart 2. Bond Market Development in Asia and Latin America: Summary of ResultsChart 2. Bond Market Development in Asia and Latin America: Summary of Results

Total Stock to GDP

Non-Developed Asia -0.324 0.057 -0.253 -0.157 0.285 0.187 0.077 0.481[0.180]* [0.278] [0.214] [0.222] [0.305] [0.352] [0.309] [0.414]

Latin America -0.462 -0.264 -0.489 -0.13 -0.297 0.073 -0.251 0.093[0.198]** [0.218] [0.264]* [0.286] [0.281] [0.391] [0.328] [0.437]

Set of Controls:Development & Stability x √ x x √ √ x √Financial Development Determinants x x √ x √ x √ √Bond Market-Specific x x x √ x √ √ √

Government Stock to GDP

Non-Developed Asia -0.253 -0.252 -0.194 -0.196 -0.103 -0.04 -0.075 0.021[0.102]** [0.171] [0.113]* [0.128] [0.177] [0.181] [0.161] [0.228]

Latin America -0.243 -0.258 -0.334 -0.16 -0.346 -0.43 -0.277 -0.25[0.112]** [0.134]* [0.139]** [0.164] [0.163]** [0.170]** [0.170] [0.240]


Corporate Stock to GDP

Non-Developed Asia 0.077 0.198 0.087 0.072 0.189 0.17 0.097 0.188[0.036]** [0.050]*** [0.039]** [0.036]* [0.055]*** [0.052]*** [0.051]* [0.059]***

Latin America -0.041 0.013 -0.056 0.018 -0.01 0.049 -0.017 0.032[0.039] [0.039] [0.047] [0.046] [0.049] [0.055] [0.052] [0.059]


Share Corporate in Total Stock

Non-Developed Asia 0.19 0.325 0.188 0.146 0.259 0.225 0.19 0.2[0.052]*** [0.079]*** [0.055]*** [0.052]** [0.085]*** [0.068]*** [0.072]** [0.089]**

Latin America 0.029 0.09 -0.009 0.081 0.006 0.015 0.045 -0.012[0.057] [0.061] [0.067] [0.066] [0.077] [0.073] [0.073] [0.089]




Chart 2. Bond Market Development in Asia and LatChart 2. Bond Market Development in Asia and LatChart 2. Bond Market Development in Asia and LatChart 2. Bond Market Development in Asia and Latin America: Summary of Resultsin America: Summary of Resultsin America: Summary of Resultsin America: Summary of Results(continued)(continued)(continued)(continued)

Share Corporate in Own Market

Non-Developed Asia -0.086 0.033 -0.154 0.061 0.033 -0.085 -0.361 -0.513[0.206] [0.361] [0.229] [0.358] [0.361] [0.576] [0.418] [0.614]

Latin America -0.111 -0.425 -0.309 -0.003 -0.425 -0.411 -0.108 -0.331[0.183] [0.293] [0.253] [0.406] [0.293] [0.467] [0.434] [0.589]


Maturity

Non-Developed Asia -0.374 -0.654 -0.407 -0.468 -0.725 -0.347 -0.451 -0.425[0.169]** [0.315]* [0.184]** [0.304] [0.321]** [0.526] [0.294] [0.515]

Latin America -0.104 0.004 -0.308 -0.017 -0.223 0.132 -0.397 -0.235[0.150] [0.256] [0.203] [0.345] [0.268] [0.427] [0.306] [0.494]

Set of Controls:Development & Stability x √ x x √ √ x √Financial Development Determinants x x √ x √ x √ √

Bond Market-Specific x x x√

x√ √ √

Size of Issue

Non-Developed Asia -0.958 -0.825 -0.521 -0.525 -0.521 -0.525 -1.05 -1.591[0.409]** [0.693] [0.788] [0.586] [0.788] [0.586] [0.738] [0.963]

Latin America -0.914 -1.791 -1.867 -1.213 -1.867 -1.213 -1.491 -1.258[0.362]** [0.562]*** [0.659]** [0.666]* [0.659]** [0.666]* [0.768]* [0.924]




Table 2. Private Bond Issues: Market of IssuanceTable 2. Private Bond Issues: Market of IssuanceTable 2. Private Bond Issues: Market of IssuanceTable 2. Private Bond Issues: Market of Issuance

Total Amount(million US$) # of Issues

Total Amount(million US$)

Share ofTotal # of Issues

Share ofTotal

Argentina 30,881 443 16,984 55.0% 329 74.3%Australia 344,642 3,134 310,939 90.2% 2,784 88.8%Austria 71,822 457 2,328 3.2% 45 9.8%Belgium 47,154 342 30,884 65.5% 195 57.0%Bolivia 1,249 135 1,249 100.0% 135 100.0%Brazil 81,056 809 42,900 52.9% 485 60.0%Canada 394,661 2,219 124,063 31.4% 1,019 45.9%Switzerland 83,868 453 39,661 47.3% 282 62.3%Chile 18,838 273 10,308 54.7% 232 85.0%China 10,059 56 5,990 59.5% 27 48.2%Colombia 9,483 409 8,292 87.4% 404 98.8%Costa Rica 2,909 205 2,909 100.0% 205 100.0%Czech Republic 2,640 8 88 3.3% 1 12.5%Germany 1,649,363 7,081 1,234,951 74.9% 5,643 79.7%Denmark 37,345 289 33,930 90.9% 241 83.4%Ecuador 1,433 111 1,132 79.0% 106 95.5%Spain 258,792 404 256,013 98.9% 367 90.8%Finland 46,371 397 37,889 81.7% 324 81.6%France 656,457 2,771 600,096 91.4% 2,355 85.0%Greece 11,034 33 11,034 100.0% 33 100.0%

Guatemala 162 106 62 38.4% 104 98.1%Hong Kong 103,709 2,002 42,474 41.0% 1,420 70.9%Hungary 1,639 10 143 8.7% 3 30.0%Indonesia 16,250 223 8,441 51.9% 152 68.2%Ireland 157,247 816 151,149 96.1% 768 94.1%Italy 439,842 1,050 430,832 98.0% 993 94.6%Lietchestein 222 2 121 54.5% 1 50.0%Luxemburg 164,160 861 129,738 79.0% 623 72.4%Mexico 56,020 573 33,118 59.1% 495 86.4%Malaysia 39,030 489 25,198 64.6% 408 83.4%Netherlands 853,536 3,718 761,333 89.2% 3,299 88.7%Norway 65,395 535 3,628 5.5% 71 13.3%New Zealand 16,318 157 2,715 16.6% 53 33.8%Panama 1,080 58 720 66.7% 55 94.8%Peru 4,954 397 4,754 96.0% 395 99.5%Philippines 9,462 132 1,123 11.9% 57 43.2%Poland 4,103 24 7 0.2% 2 8.3%Portugal 48,900 229 48,070 98.3% 206 90.0%Singapore 44,847 537 19,571 43.6% 389 72.4%Slovenia 540 77 392 72.6% 75 97.4%Sweden 117,995 802 5,481 4.6% 81 10.1%Thailand 28,240 382 18,565 65.7% 294 77.0%Uruguay 20 1 20 100.0% 1 100.0%United States 9,837,426 66,911 8,784,126 89.3% 62,329 93.2%Venezuela 2,830 74 1,111 39.3% 65 87.8%

Whole Sample 15,834,106 101,136 13,278,972 61.2% 88,301 71.6%Industrial (20) 15,302,326 92,659 12,998,860 67.6% 81,711 68.7%Developing (25) 471,654 7,536 245,671 56.2% 5,840 73.7%

Latin America & Caribbean (14) 211,453 3,671 123,951 71.5% 3,086 91.3%Eastern Europe (3) 8,382 42 238 4.1% 6 16.9%East As ia & Pac if ic ex. Japan & Aus (8) 267,914 3,978 124 ,076 44.4% 2 ,800 62 .1%

Source: SDC Platinum.

Issuer´s Country

All Markets Local Market



26

Table 4.Table 4.Table 4.Table 4. Pairwise CorrelationsPairwise CorrelationsPairwise CorrelationsPairwise Correlations – –––Bond Market Development MeasuresBond Market Development MeasuresBond Market Development MeasuresBond Market Development Measures

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 181 Stock of Domestic Debt Securities to GDP -All Issuers 12 Stock of Domestic Debt Securities to GDP -Government 0.7787* 13 Stock of Domestic Debt Securities to GDP -Non Government 0.8265* 0.2963* 14 Stock of Domestic Debt Securities to GDP -Corporate Non Financial 0.8303* 0.4114* 0.9033* 15 Stock of Domestic Debt Securities to GDP -Financial 0.4957* 0.1371 0.6241* 0.4201* 16 Stock of Domestic Debt Securities to GDP -Share Corporate in Total -0.074 0.2986* 0.1251 -0.062 0.7082* 17 Non Government Bond Issues -Share in Own Market 0.3183* 0.2432 0.2874 0.1667 0.1836 0.1313 18 Non Government Bond Issues -Share in Own Currency 0.3183* 0.2432 0.2874 0.1667 0.1836 0.1313 1.0000* 19 Non Government Bond Issues -Share Non Financial -0.3394* -0.083 -0.4939* 0.5557* -0.026 0.1805 -0.025 -0.025 1

10 Corporat e Bond Issues t o GDP 0.2754 0.1 219 0.4224* 0. 2566 0. 2133 0. 0399 0. 2402 0. 2402 -0.212 1

11 Corporate Bond Issues to GDP -Maturity Adjusted 0.2798 0.1677 0.3829* 0.2279 0.1787 0.016 0.2295 0.2295 -0.203 0.9973* 112 Number of Corporate Bond Issues to Population 0.2156 -0.041 0.4346* 0.269 0.2882 0.0866 0.1577 0.1577 -0.206 0.9752* 0.9717* 113 Corporate Bond Issues -(log) Maturity 0.4219* 0.3585* 0.2881 0.2429 0.2021 -0.009 0.2833* 0.2833*-0.2847* 0.1917 0.2165 0.1206 114 Corporate Bond Issues -Share Maturity >5 years 0.4167* 0.3578* 0.3005 0.2918 0.2363 0.0347 0.2477* 0.2477*-0.2823* 0.1069 0.1331 0.0426 0.8077* 115 Corporate Bond Issues -Share Investment Grade 0.1887 -0.014 0.3480* 0.3575* 0.0043 -0.288 0.3572* 0.3572*-0.4965* 0.1426 0.1316 0.1298 0.0072 0.055 116 Corporate Bond Issues -Share Non Rated -0.4205* 0.4921* -0.234 -0.189 -0.117 0.1021 -0.3748* 0.3748*0.2621* 0.4308*-0.4268* 0.3493*-0.4374* 0.2747* 0.0328 117 Corporate Bond Issues -Share Listed Issuer -0.215 0.3008* -0.015 0.0763 0.0577 0.2729 -0.145 -0.145 0.4720* 0.3402*-0.3411* 0.3120*-0.3620* -0.215 -0.306 0.3716* 118 Corporate Bond Issues -(log) Principal 0.5533* 0.5646* 0.3165* 0.2958 0.1644 -0.146 0.2804* 0.2804*-0.3296*0.2930* 0.2968* 0.2039 0.6857* 0.4935* 0.2154 0.6474*-0.3708* 1

* significant at 10% or better



27

Table 5.Table 5.Table 5.Table 5.1 111

-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) 0.203 0.238 0.221 0.303 0.206 0.207 0.199 0.29[0.071]*** [0.081]*** [0.085]** [0.155]* [0.085]** [0.098]** [0.168] [0.249]

Inflation -0.664 -0.707 -0.55 -0.415 -0.23 -0.593 0.643 0.547[0.684] [0.764] [0.790] [0.817] [0.866] [0.818] [1.061] [1.174]

Government Balance -3.025 -3.332 -2.721 -2.99 -2.973 -2.577 -1.404 -1.564[1.761]* [1.996] [2.097] [2.254] [2.007] [2.323] [2.134] [2.955]

Creditor Rights 0.001 -0.046 -0.063 -0.032 -0.072 -0.041 -0.059[0.043] [0.046] [0.051] [0.049] [0.051] [0.053] [0.075]

Shareholder Protection 0.078 0.094 0.074 0.126 0.073 0.1 0.112[0.081] [0.071] [0.075] [0.076] [0.073] [0.078] [0.101]

Credit Information -0.023 -0.072 -0.074 -0.084 -0.058 -0.053 -0.022[0.071] [0.066] [0.067] [0.071] [0.067] [0.074] [0.088]

Shareholder Disclosure -0.064 -0.038 -0.029 -0.054 -0.025 -0.034 -0.018[0.044] [0.040] [0.042] [0.041] [0.041] [0.045] [0.052]

Bank Private Credit to GDP 0.377 0.24 0.022 -0.043[0.206]* [0.229] [0.235] [0.343]

Stock Market Capitalization to GDP -0.078 -0.009 -0.022 0.048[0.176] [0.176] [0.236] [0.275]

log(GDP) 0.145 0.116 0.076 0.069

[0.068]** [0.081] [0.085] [0.104]Capital Account Openness 0.518 -0.753 -0.728 -1.221[0.386] [0.754] [0.802] [1.206]

De Facto Exchange Rate Fixity 0.088 0.083 0.038 0.069[0.103] [0.128] [0.158] [0.174]

Log(Pension Funds & Ins. Assets To GDP) 0.103 0.097 0.155 0.157[0.046]** [0.085] [0.103] [0.141]

Marginal Corporate Tax Rate 1.355 0.886 2.127 2.389[1.246] [1.329] [1.546] [1.707]

Median Return on Assets (Listed Cos.) -7.407 -2.241 -1.255 -4.669[4.765] [5.924] [5.862] [6.628]

log(25th Percentile Sales (Listed Cos.)) 0.055 0.032 0.082 0.099

[0.046] [0.063] [0.058] [0.085]Constant -1.194 0.737 -1.223 0.392 -1.103 -1.774 -2.962 0.829 -0.683 -0.489 -1.877 -3.457 -4.275

[0.682]* [0.436] [0.791] [0.160]** [0.814] [0.882]* [1.364]** [0.099]*** [0.917] [0.825] [1.481] [1.717]* [3.263]Observations 30 30 30 30 30 30 30 30 30 30 30 30 30R-squared 0.31 0.09 0.39 0.14 0.43 0.3 0.47 0.15 0.43 0.16 0.42 0.52 0.59Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Stock of Domestic Debt Securities to GDP 1995-2004 -All Issuers



28

Table 5.2Table 5.2Table 5.2Table 5.2

-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) 0.084 0.112 0.118 0.088 0.102 0.088 0.108 0.182[0.046]* [0.048]** [0.052]** [0.099] [0.052]* [0.055] [0.102] [0.137]

Inflation -0.233 -0.376 -0.426 -0.321 -0.228 -0.278 0.281 0.239[0.436] [0.456] [0.482] [0.519] [0.528] [0.461] [0.646] [0.644]

Government Balance -1.96 -1.868 -2.051 -1.597 -1.757 -1.132 -1.27 -1.341[1.124]* [1.190] [1.280] [1.433] [1.223] [1.309] [1.299] [1.621]

Creditor Rights -0.033 -0.054 -0.049 -0.051 -0.062 -0.045 -0.044[0.024] [0.028]* [0.031] [0.031] [0.031]* [0.030] [0.041]

Shareholder Protection 0.078 0.086 0.091 0.087 0.08 0.086 0.103[0.046] [0.042]* [0.046]* [0.048]* [0.044]* [0.044]* [0.055]*

Credit Information -0.018 -0.043 -0.043 -0.039 -0.039 -0.019 0.004[0.040] [0.039] [0.041] [0.045] [0.041] [0.042] [0.048]

Shareholder Disclosure -0.047 -0.035 -0.036 -0.035 -0.031 -0.028 -0.016[0.025]* [0.024] [0.026] [0.026] [0.025] [0.025] [0.028]

Bank Private Credit to GDP 0.018 -0.078 -0.176 -0.265[0.129] [0.140] [0.143] [0.188]

Stock Market Capitalization to GDP -0.012 0.015 -0.013 0.048[0.110] [0.107] [0.144] [0.151]

log(GDP) 0.052 0.022 0.004 0.007[0.043] [0.052] [0.052] [0.057]

Capital Account Openness 0.243 0.048 -0.268 -0.767[0.244] [0.480] [0.488] [0.661]

De Facto Exchange Rate Fixity 0.054 0.019 -0.045 -0.007[0.065] [0.081] [0.096] [0.095]

Log(Pension Funds & Ins. Assets To GDP) 0.025 0.03 0.107 0.114[0.029] [0.052] [0.063] [0.077]

Marginal Corporate Tax Rate 1.306 1.058 1.87 2.174[0.694]* [0.749] [0.941]* [0.936]**

Median Return on Assets (Listed Cos.) -2.095 -0.888 0.946 -2.22[2.653] [3.339] [3.568] [3.636]

log(25th Percentile Sales (Listed Cos.)) 0.047 0.034 0.07 0.095[0.026]* [0.036] [0.035]* [0.047]*Constant -0.382 0.512 -0.411 0.385 -0.452 -0.582 -0.587 0.431 -0.243 -0.765 -1.3 -1.845 -2.92

[0.435] [0.245]** [0.472] [0.100]*** [0.497] [0.559] [0.867] [0.062]*** [0.559] [0.460] [0.835] [1.045]* [1.790]Observations 30 30 30 30 30 30 30 30 30 30 30 30 30R-squared 0.17 0.15 0.36 0 0.37 0.17 0.37 0.03 0.37 0.24 0.46 0.47 0.64Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Stock of Domestic Debt Securities to GDP 1995-2004 -Government



29


-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) 0.001 -0.004 -0.012 0.041 -0.002 -0.006 0.001 0.045[0.016] [0.018] [0.016] [0.032] [0.019] [0.022] [0.031] [0.045]

Inflation -0.226 -0.17 -0.099 -0.073 -0.185 -0.175 -0.079 -0.15[0.155] [0.166] [0.149] [0.167] [0.196] [0.179] [0.200] [0.216]

Government Balance -0.23 -0.419 -0.124 -0.656 -0.432 -0.508 -0.111 -0.533[0.401] [0.433] [0.395] [0.461] [0.451] [0.508] [0.401] [0.547]

Creditor Rights 0.01 0.01 0.002 0.015 0.011 0.012 0.013[0.008] [0.010] [0.010] [0.010] [0.012] [0.012] [0.014]

Shareholder Protection 0.002 0.003 -0.008 0.016 0.004 0.003 0.017[0.015] [0.016] [0.015] [0.016] [0.017] [0.017] [0.019]

Credit Information 0.014 0.013 0.012 0.008 0.012 0.014 0.001[0.013] [0.014] [0.013] [0.014] [0.015] [0.016] [0.016]

Shareholder Disclosure 0.005 0.005 0.009 0 0.005 0.007 0.002[0.008] [0.009] [0.008] [0.008] [0.009] [0.010] [0.010]

Bank Private Credit to GDP 0.112 0.112 0.118 0.049[0.035]*** [0.043]** [0.046]** [0.062]

Stock Market Capitalization to GDP -0.007 -0.004 0.047 0.074[0.030] [0.035] [0.046] [0.051]

log(GDP) 0.01 0.015 0.006 0.017

[0.016] [0.017] [0.017] [0.019]Capital Account Openness -0.04 -0.35 -0.173 -0.41

[0.091] [0.153]** [0.158] [0.218]*De Facto Exchange Rate Fixity 0.004 0.041 0.048 0.056

[0.024] [0.027] [0.030] [0.031]*Log(Pension Funds & Ins. Assets To GDP) 0.015 -0.003 -0.02 -0.034

[0.009] [0.021] [0.020] [0.027]Marginal Corporate Tax Rate -0.089 -0.158 -0.075 -0.064

[0.265] [0.295] [0.289] [0.309]Median Return on Assets (Listed Cos.) -0.513 -0.481 -1.122 -1.407

[1.061] [1.375] [1.209] [1.303]

log(25th Percentile Sales (Listed Cos.)) -0.008 0.009 -0.011 0.007[0.010] [0.014] [0.012] [0.016]Constant 0.082 -0.086 -0.047 -0.015 0.019 -0.025 -0.51 0.102 -0.066 0.258 -0.147 0.114 -0.744

[0.155] [0.082] [0.173] [0.027] [0.154] [0.210] [0.278]* [0.020]*** [0.218] [0.175] [0.328] [0.339] [0.589]Observations 29 29 29 29 29 29 29 29 29 29 29 29 29R-squared 0.09 0.21 0.27 0.39 0.49 0.02 0.45 0.09 0.27 0.06 0.3 0.57 0.67Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Stock of Domestic Debt Securities to GDP 1995-2004 -Corporate



30


-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) -0.036 -0.043 -0.055 0.023 -0.033 -0.031 0.001 -0.216[0.025] [0.026] [0.024]** [0.047] [0.028] [0.031] [0.043] [0.324]

Inflation -0.392 -0.399 -0.306 -0.315 -0.534 -0.444 -0.636 -1.397[0.242] [0.242] [0.229] [0.248] [0.280]* [0.258] [0.273]** [5.799]

Government Balance 0.098 0.059 0.424 -0.515 -0.059 -0.251 -0.237 -3.412[0.625] [0.632] [0.609] [0.686] [0.645] [0.734] [0.546] [2.813]

Creditor Rights 0.019 0.018 0.008 0.022 0.026 0.021 0.158[0.012] [0.015] [0.015] [0.015] [0.017] [0.017] [0.141]Shareholder Protection -0.035 -0.038 -0.05 -0.021 -0.029 -0.042 -0.097

[0.024] [0.023] [0.023]** [0.024] [0.025] [0.025] [0.097]Credit Information 0.024 0.035 0.035 0.029 0.031 0.033 -0.058

[0.020] [0.021] [0.019]* [0.022] [0.021] [0.023] [0.092]Shareholder Disclosure 0.029 0.029 0.033 0.024 0.025 0.031 0.072

[0.013]** [0.013]** [0.012]** [0.013]* [0.013]* [0.014]** [0.053]Bank Private Credit to GDP 0.124 0.148 0.198 -0.423

[0.066]* [0.066]** [0.063]*** [0.492]Stock Market Capitalization to GDP -0.036 -0.02 0.033 0.137

[0.057] [0.054] [0.063] [0.259]

log(GDP) -0.011 -0.01 -0.018 0.222[0.025] [0.025] [0.023] [0.198]

Capital Account Openness -0.197 -0.421 -0.147 -0.173[0.137] [0.229]* [0.215] [1.382]

De Facto Exchange Rate Fixity 0.015 0.047 0.068 0.074[0.036] [0.040] [0.040] [0.175]

Log(Pension Funds & Ins. Assets To GDP) 0.002 -0.029 -0.084 0.033[0.016] [0.030] [0.027]*** [0.205]

Marginal Corporate Tax Rate -0.226 -0.287 -0.467 -0.436[0.411] [0.426] [0.395] [2.518]

Median Return on Assets (Listed Cos.) 1.168 1.074 0.63 -5.583[1.644] [1.987] [1.649] [5.944]

log(25th Percentile Sales (Listed Cos.)) -0.025 0 -0.05 0.143[0.016] [0.020] [0.016]*** [0.098]

Constant 0.493 -0.077 0.316 0.051 0.401 0.396 -0.002 0.134 0.141 0.596 0.283 1.02 -2.404[0.241]* [0.127] [0.253] [0.050] [0.238] [0.318] [0.414] [0.034]*** [0.312] [0.271]** [0.473] [0.462]** [4.408]

Observations 29 29 29 29 29 29 29 29 29 29 29 29 25R-squared 0.13 0.25 0.39 0.14 0.52 0.11 0.52 0 0.42 0.11 0.42 0.69 0.66Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Stock of Domestic Debt Securities 1995-2004 -Share of Corporate



31


-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) -0.005 0.042 0.066 -0.271 0.01 -0.015 -0.366 -0.216[0.101] [0.110] [0.116] [0.229] [0.118] [0.129] [0.272] [0.324]

Inflation -0.53 1.309 1.981 0.713 1.868 1.118 0.923 -1.397[2.233] [2.550] [2.755] [2.631] [2.665] [2.607] [3.886] [5.799]

Government Balance -3.222 -4.369 -4.277 -2.664 -4.268 -3.965 -0.957 -3.412[1.608]* [1.869]** [2.005]** [2.095] [1.892]** [1.996]* [2.143] [2.813]

Creditor Rights 0.023 0.059 0.042 0.095 0.041 0.08 0.158[0.042] [0.048] [0.054] [0.052]* [0.054] [0.053] [0.141]

Shareholder Protection -0.12 -0.1 -0.11 -0.128 -0.107 -0.096 -0.097[0.075] [0.072] [0.076] [0.076] [0.073] [0.077] [0.097]


Shareholder Disclosure 0.064 0.057 0.07 0.052 0.064 0.075 0.072[0.039] [0.041] [0.044] [0.041] [0.042] [0.046] [0.053]

Bank Private Credit to GDP 0.018 0.033 -0.083 -0.423[0.191] [0.213] [0.243] [0.492]

Stock Market Capitalization to GDP 0.017 0.147 0.096 0.137[0.166] [0.168] [0.239] [0.259]

log(GDP) 0.116 0.124 0.092 0.222

[0.065]* [0.084] [0.099] [0.198]Capital Account Openness -0.334 0.842 0.094 -0.173

[0.410] [0.875] [1.008] [1.382]De Facto Exchange Rate Fixity 0.141 0.049 0.177 0.074

[0.104] [0.123] [0.163] [0.175]Log(Pension Funds & Ins. Assets To GDP) -0.003 0.073 0.177 0.033

[0.053] [0.089] [0.138] [0.205]Marginal Corporate Tax Rate 0.55 -0.113 1.355 -0.436


[4.543] [5.102] [5.600] [5.944]

log(25th Percentile Sales (Listed Cos.)) 0.05 0.091 0.045 0.143[0.042] [0.054] [0.057] [0.098]Constant 0.72 0.912 0.505 0.608 0.18 -0.845 1.144 0.633 0.959 -0.249 -0.718 1.752 -2.404

[1.016] [0.406]** [1.221] [0.162]*** [1.306] [0.850] [1.750] [0.102]*** [1.354] [0.732] [1.738] [2.127] [4.408]Observations 25 25 25 25 25 25 25 25 25 25 25 25 25R-squared 0.17 0.16 0.37 0 0.41 0.15 0.48 0 0.39 0.12 0.48 0.45 0.66Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Domestic Debt Securities 1995-2004 -Share of Corporate in Own Market



32


-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) 0.07 0.101 0.092 0.499 0.043 0.159 0.259 0.391[0.093] [0.101] [0.109] [0.197]** [0.102] [0.125] [0.247] [0.270]

Inflation -1.372 -3.112 -3.529 -2.782 -2.112 -3.137 -2.927 -2.049[2.057] [2.329] [2.574] [2.262] [2.286] [2.520] [3.534] [4.828]

Government Balance -1.979 -0.135 -0.409 -1.854 0.044 -0.896 -3.133 -1.689[1.481] [1.707] [1.873] [1.801] [1.623] [1.929] [1.949] [2.343]

Creditor Rights 0.027 -0.018 -0.009 -0.054 -0.051 -0.009 -0.043[0.038] [0.044] [0.050] [0.045] [0.046] [0.051] [0.117]

Shareholder Protection -0.072 -0.083 -0.074 -0.042 -0.094 -0.104 -0.049[0.068] [0.066] [0.071] [0.065] [0.063] [0.074] [0.080]

Credit Information 0.098 0.146 0.141 0.163 0.161 0.161 0.197[0.061] [0.067]** [0.071]* [0.066]** [0.064]** [0.074]** [0.076]**

Shareholder Disclosure 0.019 0.042 0.035 0.043 0.053 0.06 0.065[0.035] [0.037] [0.041] [0.035] [0.036] [0.044] [0.044]

Bank Private Credit to GDP -0.055 -0.103 -0.308 -0.233[0.172] [0.199] [0.221] [0.409]

Stock Market Capitalization to GDP 0.025 -0.005 -0.097 -0.046[0.150] [0.157] [0.217] [0.216]

log(GDP) -0.007 -0.097 -0.035 -0.08

[0.063] [0.072] [0.090] [0.165]Capital Account Openness 0.151 -1.425 -1.117 -1.6

[0.397] [0.752]* [0.917] [1.151]De Facto Exchange Rate Fixity -0.033 0.025 -0.112 -0.024

[0.101] [0.106] [0.148] [0.145]Log(Pension Funds & Ins. Assets To GDP) 0.057 0.13 0.117 0.193

[0.046] [0.077] [0.126] [0.170]Marginal Corporate Tax Rate -0.155 -1.053 0.403 1.204

[1.051] [1.105] [1.635] [2.097]Median Return on Assets (Listed Cos.) -2.586 1.537 0.405 -0.614

[4.330] [4.931] [5.093] [4.949]log(25th Percentile Sales (Listed Cos.)) 0.016 0.016 0.057 0.086

[0.040] [0.052] [0.052] [0.082]Constant 1.301 1.584 0.661 1.942 0.818 1.939 -0.908 1.995 1.475 1.74 -0.006 0.62 -1.471

[0.936] [0.366]*** [1.116] [0.145]*** [1.220] [0.825]** [1.504] [0.089]*** [1.161] [0.697]** [1.680] [1.935] [3.671]Observations 25 25 25 25 25 25 25 25 25 25 25 25 25R-squared 0.13 0.16 0.35 0 0.36 0.01 0.53 0.06 0.45 0.02 0.41 0.44 0.71Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Domestic Debt Securities 1995-2004 -Mean Maturity of Corporate Issues



33


-(1) -(2) -(3) -(4) -(5) -(6) -(7) -(8) -(9) -(10) -(11) -(12) -(13)

log(GDP per capita) 0.356 0.328 0.346 -0.256 0.297 0.187 -0.252 0.082[0.227] [0.266] [0.288] [0.544] [0.290] [0.304] [0.533] [0.616]

Inflation -0.362 -0.833 -0.088 -2.818 -0.299 -0.444 -3.507 -20.805[4.988] [6.141] [6.829] [6.246] [6.530] [6.145] [7.626] [11.020]*

Government Balance -8.733 -8.649 -8.245 -4.488 -8.553 -7.152 -2.428 -10.28[3.592]** [4.501]* [4.970] [4.972] [4.635]* [4.705] [4.205] [5.347]*

Creditor Rights 0.001 0.002 -0.016 0.091 -0.016 0.069 0.605[0.101] [0.117] [0.133] [0.124] [0.132] [0.124] [0.268]*

Shareholder Protection -0.092 -0.08 -0.096 -0.117 -0.086 -0.083 0.012[0.182] [0.174] [0.189] [0.180] [0.180] [0.181] [0.183]


Shareholder Disclosure -0.033 0.002 0.014 -0.016 0.009 0.05 -0.007[0.095] [0.098] [0.110] [0.098] [0.103] [0.108] [0.102]

Bank Private Credit to GDP 0.185 0.152 -0.472 -2.253[0.452] [0.528] [0.477] [0.934]**

Stock Market Capitalization to GDP -0.115 0.042 0.12 0.217[0.394] [0.417] [0.469] [0.492]

log(GDP) 0.376 0.36 0.317 1.032[0.133]** [0.199]* [0.193] [0.376]**Capital Account Openness 0.032 0.785 -0.976 -3.323

[0.844] [2.078] [1.978] [2.626]De Facto Exchange Rate Fixity 0.445 0.296 0.291 0.159

[0.215]* [0.293] [0.319] [0.332]Log(Pension Funds & Ins. Assets To GDP) 0.054 0.069 0.347 -0.313

[0.125] [0.219] [0.272] [0.389]Marginal Corporate Tax Rate 2.974 1.339 3.396 -4.319


[9.089]* [12.027] [10.990] [11.296]

log(25th Percentile Sales (Listed Cos.)) 0.237 0.231 0.249 0.583[0.084]** [0.127]* [0.113]** [0.187]**

Constant 1.412 6.186 3.007 4.682 2.709 -0.987 2.503 4.84 3.44 0.162 -0.826 -0.674 -15.454[2.270] [0.987]*** [2.942] [0.383]*** [3.238] [1.752] [4.153] [0.242]*** [3.317] [1.464] [4.096] [4.175] [8.377]

Observations 25 25 25 25 25 25 25 25 25 25 25 25 25R-squared 0.26 0.12 0.35 0.01 0.35 0.36 0.48 0.01 0.35 0.38 0.49 0.63 0.78Standard errors in brackets* significant at 10%; ** significant at 5%; *** significant at 1%

Domestic Debt Securities 1995-2004 -Mean Principal of Corporate IssuesLo Princi al of Cor orate Issues



34

FIGURESFIGURESFIGURESFIGURES 1111: BOND MARKETS: BOND MARKETS: BOND MARKETS: BOND MARKETS – –––LATIN AMERICA vs. ASIALATIN AMERICA vs. ASIALATIN AMERICA vs. ASIALATIN AMERICA vs. ASIA

BOND MARKET SIZE TO GDP AND COMPOSITION 1995-2004

0

. 1

. 2

. 3

. 4

. 5

. 6

. 7

. 8

. 9

1

ARG BRA CHL COL MEX PER 0

. 1

. 2

. 3

. 4

. 5

. 6

. 7

. 8

. 9

1

CHN HKG IDN IND KOR MYS PAK PHL SGP THA 0

. 1

. 2

. 3

. 4

. 5

. 6

. 7

. 8

. 9

1

D evel oped Latin A meri ca Non -Deve lope d Asi a

Govenment

Corporate

Financial



35

0.435780.2018350.0688070.0320370.014908

CORPORATE BOND STOCK TO TOTAL 1995-2004

0

. 0 5

. 1

. 1 5

. 2

m e a n o f s h a r e c o r p g d p 9 5 0 4

Developed Latin Ameri ca Non-Developed Asi a

HARE OF CORPORATE BOND ISSUES IN OWN CURRENCY 1995-200

0

. 2

. 4

. 6

m e a n o f O W N C U R a l l

Developed Latin America Non-Developed Asia

MATURITY OF CORPORATE BOND ISSUES 1995-2004

0

2

4

6

8

m e a n o f T E R M

Developed Latin Amer ica Non-Developed Asi a

MEAN PRINCIPAL OF CORPORATE BOND ISSUES (Million USD) 1995-2004

0

5 0

1 0 0

1 5 0

2 0 0

m e a n o f P R I N

Developed Lat in Ameri ca Non-Developed Asia



36

FIGURESFIGURESFIGURESFIGURES 2222: BOND MARKETS: BOND MARKETS: BOND MARKETS: BOND MARKETS – –––LATILATILATILATIN AMERICA vs. ASIA ACCOUNTING FOR THE DIFFERENCESN AMERICA vs. ASIA ACCOUNTING FOR THE DIFFERENCESN AMERICA vs. ASIA ACCOUNTING FOR THE DIFFERENCESN AMERICA vs. ASIA ACCOUNTING FOR THE DIFFERENCES

Stock of Domestic Debt Securities 1995-2004 -Share of Corporate

S tock of D ome st ic De bt Se cu rities to G DP 199 5-20 04 - All Is su ers S tock of D ome stic Debt Se cu rities to GDP 1 995 -200 4 - Gov ernment

Stock of Domestic Debt Securities to GDP 1995-2004 -Corporate

0

. 5

1

1 . 5

2

2 . 5

Dev eloped Lat in Am erica Non-Deve lope d Asi a

Development& Stability

FinancialDevelopmentDeterminants

Bond MarketSpecificDeterminants

0

. 5

1

1 . 5

Dev el oped Latin Am er ica Non- De velo ped Asi a




0

. 2

. 4

. 6

D evel op ed L at in Am er ica Non-De velope d Asi a


Financial

DevelopmentDeterminants


0

. 1

. 2

. 3

Dev el oped Latin Am er ica Non- Deve lo ped Asi a






37

Domestic Debt Securit ies 1995-2004 -Share of Corporate in Own Market Domestic Debt Securit ies 1995-2004 -Mean Maturity of Corporate Issues

Domestic Debt Securities 1995-2004 -Mean Principal of Corporate Issues

0

. 5

1

1 . 5

2

Dev el op ed L at in Ameri ca N on -De ve lo pe d Asia




0

2

4

6

D evelop ed Lat in Ame ri ca N on -De ve lo ped Asia




0

5

1 0

1 5

Dev el op ed L at in Ameri ca N on -De ve lo pe d Asia




matias braun - the development of bond markets - asia vs. latin america

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