Abstract
This paper documents how firms in Arab countries use equity, corporate bond and syndicated loan markets to obtain financing and grow. Working with a new dataset on issuance activity in domestic and international markets and firm performance, the paper finds that capital raising through these markets has grown rapidly since the early 1990s and involved an increasing number of firms. Whereas the amounts raised in equity and loan markets (relative to gross domestic product) stand well relative to international standards, bond issuance activity lags behind. However, bond financing has gained importance over time. Equity issuances take place primarily in domestic markets, whereas bonds and loans are mostly issued internationally, display long maturities and entail low levels of credit risk. Issuing firms from the Arab region are very large compared to international standards. They also tend to be larger, faster growing and more leveraged than non-issuing firms in Arab countries.
Highlights
Since the early 1990s, many countries in the Arab world have embarked on significant financial and economic reforms, involving internal and external financial liberalization, as well as efforts to increase the depth, scope, and efficiency of their financial systems
(1) What is the total amount raised in equity, bond, and syndicated loan markets by firms in the Arab region and how does their issuance activity stand with respect to the rest of the world? (2) How many and which firms issue equity, bonds, and syndicated loans? (3) How do the assets, turnover, and number of employees evolve for issuing relative to nonissuing firms?
The Gulf Cooperation Council (GCC) countries capture around 80-90 percent of the total amount raised in equity and debt markets
Summary
Since the early 1990s, many countries in the Arab world have embarked on significant financial and economic reforms, involving internal and external financial liberalization, as well as efforts to increase the depth, scope, and efficiency of their financial systems. The total amount raised (number of issuing firms) has increased 21-fold (15-fold) in equity markets, 22-fold (6-fold) in bond markets, and 5-fold (3-fold) in syndicated loan markets between 1991-1998 and 2007-2014 These findings stand in contrast with other regions in the world, where the expansion in capital market issuance activity has been mainly associated with a growth in the intensive margin (Didier and Schmukler, 2013; Didier, Levine, and Schmukler, 2015). The number of issuers in Arab bond (syndicated loan) markets has increased almost 6-fold (3-fold), from 24 (141) to 146 (483) issuers These findings stand in contrast with other regions in the world, where the expansion in capital market issuance activity has been mainly associated with a growth in the intensive margin, that is, a small number of firms materially increasing their use of capital markets (Didier and Schmukler, 2013; Didier, Levine, and Schmukler, 2015). These patterns complement the previous results from the difference-in-differences analysis and confirm that the results hold for the mean firm, but issuers tend to be larger ex ante and grow even faster than non-issuers along the whole FSD
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