Abstract
The development of the corporate bond market in Latvia while being quick and robust in the period 2012-2017 (the average growth rate 131%, median 44%), has faced major challenges in 2018 (Nasdaq Baltic, 2018). The latter has demonstrated the vulnerability of this alternative to banking financing method in Latvia. In the environment, where the ongoing changes in the banking financing as initiated by the Basel III and Capital Markets Union initiatives, besides to the decision on creation of pan-Baltic capital market with the support of the European Commission and the European Bank for Reconstruction and Development, are bringing more emphasis on the increasing role of the corporate bond market in Latvia; the need to understand its development and factors affecting this development is essential. The goal of this article is to explore the corporate bond market development frameworks as elaborated by the academic research and recognise corporate bond market development determinants, identify the determinants of the corporate bond market in Latvia by running the statistical analysis. Tasks of the research include examining types of corporate bond development frameworks with the focus on revealing the determinants of the corporate bond market development as recognised by the academics, performing the econometric analysis of the determinants selected and building an econometric model of the determinants of the development of the corporate bond market in Latvia as well as drawing corresponding conclusions. In order to accomplish the tasks of the research the following research methods were used: analysis of the previously performed research, analysis of the legislative framework; quantitative research methods: statistical data analysis of macroeconomic data from Bank for International Settlement, The World Bank Database, Bloomberg and Reuters databases; financial market indicator and data analysis from Nasdaq Baltic, Bank for International Settlement, Treasury of the Republic of Latvia, Bloomberg and Reuters databases; correlation analysis, regression analysis. In the result of the analysis, the determinants of the corporate bond market development in Latvia were analysed, where 27 factors as detected by the theoretical analysis to be influencing the corporate bond market development in a country were applied to Latvia. The regression analysis has demonstrated the influence of Gross Domestic Product (GDP) per capita, amount of domestic savings, real GDP growth, amount of government bonds as the share of GDP and regulatory quality on the amount of the corporate bonds outstanding. DOI: http://dx.doi.org/10.5755/j01.eis.0.12.21875
Highlights
The expositive elements frameworks provide the dimensions for the assessment of the current situation of the corporate bond market, where the number of studies reveal one or several main factors as influencing the development of the corporate bond market based on the qualitative or statistical analysis made
While the factors as identified by the academics to determine the development of the corporate bond market in a country or group of countries vary between the studies, the factors should be identified and applied to the corporate bond market in Latvia
4 internationally recognised accounting standards The accounting information as reported by the company providing economic activity in Latvia is regulated by the Law On Accounting where the Law On the Annual Financial Statements and Consolidated Financial Statements is providing the regulation for preparation of the financial statements. (Law On Accounting, 2018; Law On the Annual Financial Statements and Consolidated Financial Statements, 2018)
Summary
The expositive elements frameworks provide the dimensions for the assessment of the current situation of the corporate bond market, where the number of studies reveal one or several main factors as influencing the development of the corporate bond market based on the qualitative or statistical analysis made. The study of Tocelovska (2016) identified the size of the bond market, secondary market turnover, Literature Reviews maturity structure of the bonds, investor base, bond issuers, the tax treatment of bonds, market infrastructure, and qualitative assessment of the legal and regulatory framework as influencing the development of the corporate bond market in a country. The factor of size the country and lending to SME segment, foreign ownership of the banks were identified by the majority of the studies as influencing the development of the corporate bond market: Mu et al (2013), Bae (2012) Eichengreen et al (2008), Braun and Briones (2006), Burger and Warnock (2005), Eichengreen and Leungnareumitchai (2004); and Astrauskaite (2016), Behr et al (2015), Hasan et al (2014), Hakenes et al (2014), Popov and Udell (2012), Bae (2012), Stewart (2009), Adelegan and Radzewicz-Bak (2009), Eichengreen and Leungnareumitchai (2004), Jiang et al (2001) respectively
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