Corporate Governance: Securities Market in Moldova

This paper offers analysis of corporate governance issues behind stock market performance (stock returns and activity) in Moldova - one of the Central and Eastern European (CEE) countries. Born during the years of mass privatization, securities market of Moldova enjoyed the support for the growth from U.S. Government on behalf of U.S. Agency for International Development (USAID), The Western NIS (New Independent States) Enterprise Fund (WNISEF) and U.S. Securities and Exchange Commission (SEC). Moldova is a member Federation of Euro-Asian Stock Exchanges (FEAS), but has joined neither The World Federation of Exchanges (WFE), nor The International Organization of Securities Commissions (IOSCO). On the basis of three variables, reflecting the development of Stock Exchange, market capitalization of listed companies over gross domestic product (GDP), Value traded over gross domestic product (GDP), Value traded over market capitalization (also known as turnover ratio), I find that the securities market in Moldova is still undeveloped and of very low liquidity. This fact can be explained by a high level of shadow economy (60%), weak macro-economic situation in the country and imperfect Corporate Governance framework. In its turn this leads to a very low investment activity, almost total absence of IPO and prevalence of Off-exchange market. Furthermore, I see the investment funds in Moldova as having a lot of potential to facilitate the development of the capital market of Moldova. However, these funds, being established in the years of mass privatization for vouchers (bonds) have not invested any real capital into the owned companies and continue to be holding companies rather than actively engaged in portfolio investment. Therefore I support the process of reorganization of investment funds and turning them into really Investment and not just Asset Management Institutions. And I find that the enforcement of adequate regulations would give a highest positive impact for the development of the stock market in Moldova under condition of the positive growth in the country's economy.