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ABSTRACT
This paper explores the origins and development of the Philippine stock market. Specifically, it looks at the structural and regulatory development of the stock exchange, and the growth of the stock market in terms of size, liquidity, and other key market indicators. The Philippine stock market has undergone a number of reforms and development since the 1990s. These include the unification of two stock exchanges, the demutualization of the Philippine Stock Exchange (PSE), and the enactment of the Securities Regulation Code. As a result, the Philippine stock market has experienced a phenomenal growth over the years. Measured by market capitalization ratio, the world ranking of the Philippine stock market has improved from 44th in 2009 to 12th in 2014. Although the PSE has developed fast over the years, it still faces a wide range of challenges, including a less diversified investor base, a lack of competition on the PSE when compared with its regional counterparts, weak corporate governance, and weak legal framework for financial sector development.
INTRODUCTION
Stock market is an important component of the financial sector in promoting economic development. By reducing the cost of mobilizing savings, the stock market may channel investments into the most productive technologies, therefore leading to economic growth (Greenwood and Smith 1997). As the stock market develops, it may improve corporate governance by addressing the principal-agent problem, which is beneficial to economic growth (Jensen and Murphy 1990). Also, the stock market provides market liquidity that enables the implementation of long-term projects with long-term payoffs, thereby promoting a country's economic growth (Bencivenga et al. 1996; Levine 1991). According to Arestis et al. (2001), stock market development makes financial assets less risky, and gives companies easy access to capital through equity issues. This leads to improvement in capital allocation and serves as a channel for economic growth. Given all the important functions provided by stock markets, its key role in the economic development of emerging market economies, such as the Philippines, cannot be overlooked.
The Philippine Stock Exchange (PSE) is one of the oldest stock market exchanges in Asia. It was established in 1927 (PSE 2015a; Visda et al. 2013). At that time, the general market activities in the PSE were regarded as insignificant and essentially speculative (Tan...