Financial technology adoption and the dynamics of capital market development : a cross-country examination

Abstract

What role, if any, can financial technology adoption play in determining the capital structure and growth of financial markets? This thesis analyzes the dynamics of cross-country capital market development by examining financial technology adoption as the primary agent of growth and expansion in capital markets. In a systematic econometric study of 192 countries from 1960 to 2014, we find that the adoption of financial technology as the driver of capital market development can explain the growing paradigm shift in the expansion of equity markets and shrinkage of credit markets. Amongst others, our control variables include demand for finance, legal origin, trade openness, external financing constraints and protection of minority investor rights. Based on multiple sets of pooled OLS regression analyses and in absence of establishing a causality relationship, our estimation results conclude that financial technology innovation is not only strongly associated with capital market development, it also affects private-equity-stock markets disproportionately more than private-bank-credit markets.