Abstract
Over the past decade, the Russian government implemented numerous reforms aimed at attracting investor capital and improving the capital market conditions. These reforms included adoption of stringent listing regulations and governance norms, revisions in the tax and ownership laws, restructuring of the major stock exchanges, and more importantly, adoption of International Financial Reporting Standards (IFRS) in 2011. We employ an adaptive market hypothesis (AMH) perspective formulated by Lo (2004, 2005) to examine whether the informational efficiency of the market changed over time as a result of these reforms. While we report that the Russian stock market is still not weak-form efficient, as it was before the reforms, we find the evidence of improvement in efficiency over time. Next, we find that financing decisions of Russian public firms changed following adoption of IFRS when financial statements became more transparent and better aligned with informational needs of local and foreign investors. Particularly, Russian companies that adopted IFRS were more likely to raise finance via issuance of equity rather than debt instruments, whereas for non-adopters there was no change in the firm capital structure. Finally, we report that there was an increase in the inflow of foreign direct investments (FDI) in the post-reform period, suggesting that the above noted reforms conferred significant benefits to the entire Russian economy.
Highlights
Over the past two decades, emerging markets have been on the rise and the global investments in their equity instruments have increased substantially
While we report that the Russian stock market is still not weak-form efficient, as it was before the reforms, we find the evidence of improvement in efficiency over time
We conclude that the ambitious reforms implemented by the Russian government over the past decade were beneficial to both the Russian stock market and the global investment community
Summary
Over the past two decades, emerging markets have been on the rise and the global investments in their equity instruments have increased substantially. Studies documented limited benefits to implementation of the capital market reforms and a negative market reaction to this event in the cases of countries with limited resources This revealed investor skepticism towards the actual achievement of the ultimate goals of these reforms, namely improving the information environment of the national market (Armstrong, Barth, Jagolinzer, & Riedl, 2010, Karampinis & Hevas, 2011). We contribute to this debate and report evidence that suggests that limited resources and imperfections of the legal system, the two major attributes of emerging markets, do not affect the degree of success of the capital market reforms implemented within emerging markets.
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