Showing papers on "Market capitalization published in 2010"

The influence of board size on intellectual capital disclosure by Kenyan listed firms

Abstract: Purpose – The purpose of this paper is to examine the effect of board size on firms disclosing more, rather than less, strategic and tactical intellectual capital resources using the top 26 of the 52 firms ranked by the Nairobi Stock Exchange for market capitalization in 2002 and in 2003 This study identifies intellectual capital disclosure by three separate categories: internal capital, external capital, and human capital Hence, this study examines the influence of board size on six disclosure outcomesDesign/methodology/approach – The study develops hypotheses using the resource dependency theory Using content analysis for data generation, this study classifies firms that disclose more versus those that disclose less, using the mean for all firms for each disclosure outcomeFindings – Using logistic regression, the study examines the influence of board size on each disclosure outcome and finds that firms disclosing more tactical internal capital and more strategic human capital have larger boardsPra

The New Game in Town: Competitive Effects of IPOs

Abstract: We analyze the effect of initial public offerings (IPOs) on industry competitors and provide evidence that companies experience negative stock price reactions to com pleted IPOs in their industry and positive stock price reactions to their withdrawal. Following a successful IPO in their industry, they show significant deterioration in their operating performance. These results are consistent with the existence of IPO related competitive advantages through the loosening of financial constraints, finan cial intermediary certification, and the presence of knowledge capital. These aspects of competitiveness are significant in explaining the cross-section of underperformance as well as survival probabilities for competing firms. An extensive literature analyzes the performance of companies around their initial public offerings (IPOs). This literature focuses on returns on the first day of trading, as well as on returns and operating performance for the 5-year period after the IPO. For example, Ibbotson and Jaffe (1975) document a positive initial return for newly issued companies, while Ritter (1991) analyzes the long run stock price performance of IPOs and Jain and Kini (1994) consider firms' post-IPO operating performance. Our article adds a new dimension to this literature by considering not only the stock market and operating performance of the issuing company, but also the impact of the IPO on the performance of industry competitors. The competitive effects of IPOs have important implications for various agents including investors, industry competitors, and issuing firms. Issuing companies comprise a relatively small portion of portfolio value; in this arti cle's sample, for instance, existing and publicly traded firms comprise 97.5% of the total post-IPO market capitalization of industries in which IPOs occur, while IPO firms comprise only 2.5%. It is therefore important for investors to know how an IPO affects the operating and stock market performance of

Creating ‘value’ beyond the point of production: branding, financialization and market capitalization

Abstract: The contemporary significance of branding as a source of value is explored by situating the creation and valorization of brand equity within ‘the full circuit of capital’. Conceived as a form of co-production occurring in the sphere of circulation (as well as production), brand-building is connected to: the surpluses generated by the labour of user-consumers as well as the designers and producers of branded products and services; the realization of surplus through control of revenues derived from sales of these products and services and the appropriation of surpluses, including the conversion of brand equity into brand value after deduction of costs. Contemporary investment in branding is related to the financialization of brands as intangibles that make a growing contribution to market capitalization. By attending to multiple facets of the circuit of capital, including the co-production brand equity by user-consumers, some pointers are proposed for developing a more ‘joined-up’ view of the ‘bigger picture’ of contemporary capitalist reproduction.

Do individual investors trade Stocks as gambling? Evidence from repeated natural experiments

Abstract: Multiple natural experiments of large jackpot lotteries in Taiwan are used to document that some individual investors trade stocks as a form of gambling. Those investors substitute lottery gambling for stock trading. This substitution effect between lottery and stock is substantiated by the following five key findings. First, when the jackpot exceeds 500 million Taiwan dollars (about 15 million U.S. dollars), the number of shares traded by individual investors decreases by about 7% among stocks with high individual trading fraction, low market capitalization, high past returns, and high past turnover. Second, the reduction in individual trading is about 7% among stocks with lottery features, i.e. high return volatility and skewness. Third, the magnitude of the decline increases monotonically with the jackpot. Fourth, firm-level trading activity reacts negatively to large jackpots, and is statistically significant for a sizable number of firms. Finally, the aggregate trading activity by individual investors declines by about 5% on large jackpot days.

Liquidity and market efficiency: A large sample study

Abstract: Chordia et al. (2008, hereafter CRS) examine short horizon return predictability from past order flows of large, actively traded NYSE firms across three tick size regimes and conclude that higher liquidity facilitates arbitrage trading which enhances market efficiency. We extend CRS to a comprehensive sample of all NYSE firms and examine the dynamics between liquidity and market efficiency during informational periods. Our results indicate that although all NYSE firms experience an overall improvement in market efficiency across periods of different tick size regimes, this improvement varies significantly across the portfolios of sample companies formed on the basis of trading frequency, market capitalization, and trading volume. After controlling for these factors, we further document a positive association between a continuous measure of liquidity and market efficiency, and show that this effect is amplified during periods that contain new information, as reflected in high adverse selection component of the bid-ask spread.

The Role of Stock Market Development in Economic Growth: Evidence from Some Euronext Countries

Abstract: In this article we explore causality relationship between stock market and economic growth based on the time series data compiled from 5 Euronext countries (Belgium, France, Portugal, Netherlands and United Kingdom) for the period 1995:Q1 to 2008:Q4. Granger causality test was used to find causality relationship between stock market proxies through market capitalization, total trade value, turnover ratio and economic growth (GDP and FDI). Causal relations were investigated for each country. The results of the study suggest a positive links between the stock market and economic growth for some countries for which the stock market is liquid and highly active. However, the causality relationship is rejected for the countries in which the stock market is small and less liquid.

Analysis the Determinants of Market Stock Price Movements: An Empirical Study of Jordanian Commercial Banks

Abstract: Financial firms make up a substantial fraction of the domestic equity market. A number of studies subsequently used different conceptual and methodological approaches to model equity return of financial services firms. Movement of the stock price as the consequence of the movement of the micro and macroeconomic factors is strongly supported by the literature review. Amman Stock Exchange in Jordan is inefficient in weak form. The sample of study includes the 14 commercial banks of Amman Stock Exchange for the period 2005 -2008. Simple and multiple regression analysis is conducted to find out the relationship microeconomic factors with the stock price and found highly positive significant relationship between market price of stock and net asset value per share; market price of stock dividend percentage, gross domestic product, and negative significant relationship on inflation and lending interest rate but not always significant on some years of Amman Stock Exchange in Jordan.

Corporate Governance in Pakistan: Corporate Valuation, Ownership and Financing

Abstract: In this study the relationship between corporate governance and corporate valuation, ownership structure and need of external financing for the Karachi Stock Market is examined for the period 2003 to 2008. To measure the firmlevel governance a rating system is used to evaluate the stringency of a set of governance practices and cover various governance categories: such as board composition, ownership and shareholdings and transparency, disclosure and auditing. The sample consists of 60 non-financial firms listed on Karachi Stock Exchange and comprises more than 80 percent of market capitalization at Karachi Stock Market in 2007. The results confirms the theoretical notion that firms with better investment opportunities and larger in size adopt better corporate governance practice. The proposition that ownership concentration is a response to poor legal protection is also validated by the results. The more investment opportunities lead to more concentration of ownership and the ownership concentration is significantly diluted as the firm size expands. The findings are consistent with theoretical argument claiming that family owners, foreign owners and bring better governance and monitoring practices which is consistent with agency theory. The results suggest that firms which need more equity financing practice good governance. The results show that firms with high growth and large in size are in more need of external finance. The relationship between external financing and ownership concentration is negative. The results reveal that the firms which practice good governance, with concentrated ownership, need more external finance which have more profitable investment opportunities and are larger in size are valued higher. The interaction term of any variable with law enforcement term are not significant in any model suggesting that firm performance is not affected by rule of law in countries where legal environment is weak. These results adds an important link to the explanation of the consequences weak legal environment for external financing, corporate valuation and corporate governance. The results show that Corporate Governance Code 2002 potentially improves the governance and decision making process of firms listed at KSE.

The Role of Stock Market Development in Economic Growth: Evidence from Some Euronext Countries

Abstract: In this article we explore causality relationship between stock market and economic growth based on the time series data compiled from 5 Euronext countries (Belgium, France, Portugal, Netherlands and United Kingdom) for the period 1995:Q1 to 2008:Q4. Granger causality test was used to find causality relationship between stock market proxies through market capitalization, total trade value, turnover ratio and economic growth (GDP and FDI). Causal relations were investigated for each country. The results of the study suggest a positive links between the stock market and economic growth for some countries for which the stock market is liquid and highly active. However, the causality relationship is rejected for the countries in which the stock market is small and less liquid.

An Empirical Analysis of the Impact of the Nigerian Capital Market on Her Socio-economic Development

Abstract: The objective of this study was to empirically analyze the impact of the Nigerian capital market on her socio-economic development from 1981 to 2008. The socio-economic development was proxy by the...

Financial Development and Economic Growth in India An Analysis of the Post-reform Period

Abstract: This article examines the impact of the developments in the financial sector on economic growth in India in the post-reform period. The model of Mankiw et al. (1992) was extended to establish a relationship between financial development and economic growth. The model was then estimated using quarterly data for the period 1993 to 2005 for India, using the techniques of cointegration and vector error correction method. Cointegration results show that capital–output ratio and rate of growth of human capital have positive effects on real rate of growth of GDP, irrespective of the indicator of stock market development. An increase in the market capitalization dampens economic growth, whereas turnover has no significant effect, and an increase in the money market rate of interest has a positive effect on economic growth. Real wealth, debt burden, real effective exchange rate and the rate of growth of labour have negative effects. Vector error correction method shows that the ECM term relating to market capitali...

Relationship between economic growth and stock market development

Abstract: The capital market plays an essential role in the growth of commerce and industry which ultimately affects the economy of the country to a large extent. This is the rationale that the industrial bodies, government advisors and even the central bank of the country keep a close eye on the activities of the stock market. This paper explores the relationship between the stock market development and economic growth in Pakistan for the period of 1986 to 2008. We investigated the stock market development and economic growth relationship by using the two major measures of stock market development, namely: size of the market and liquidity prevalent in the market in terms of market capitalization. The results revealed that economic growth can be attained by increasing the size of the stock markets of a country as well as the market capitalization in an emerging market like Pakistan. Key words: Pakistan, stock market development, economic growth, augmented dicky-fuller test, market capitalization, liquidity, human development index, emerging economies.

Know Your VMS Exposure

Abstract: One of the ongoing debates in equity market research is the set of common factors that explains the cross section of individual stock returns. With the influential backing of Fama and French [1993], a three-factor model that includes the market, size, and value factors is frequently cited in academic research and widely used in portfolio management. More recently, momentum has joined the list of accepted factors, resulting in references to a four-factor model. Lately, security volatility has begun to be used, along with the factors just mentioned, in describing portfolio risk. The authors introduce a specific measure of the idiosyncratic volatility factor that mirrors the Fama–French methodology, calling it VMS for volatile-minus-stable stocks. VMS is calculated for the entire span of the CRSP database and found to have strong credentials. VMS seems to be more important than SMB (small-minus-big market capitalization) and HML (high-minus-low book-to-market ratio), and similar to UMD (up-minus-down past return) in explaining the covariance structure of stock returns. The relative importance of VMS holds over the entire history for which it can be measured in the U.S. market (1931–2008) and continues to be an important factor in the covariance structure of stock returns in recent decades (1983–2008). Volatility, however, is not very orthogonal to the more well-known factors, a desirable property for new factors. Specifically, VMS is highly correlated to the general market (e.g., volatile stocks outperform stable stocks when the general equity market goes up) despite the fact that the authors measure security volatility in a market-idiosyncratic setting. VMS is also positively correlated with SMB (e.g., volatile stocks tend to outperform when small-cap stocks outperform) despite the Fama–French process of double sorting on market capitalization. Finally, VMS is negatively correlated with HML (e.g., volatile stocks tend to outperform when growth stocks outperform) although this correlation was not pronounced until the last few decades. In contrast to the other Fama–French factors, the average return of the VMS factor has been close to zero over time and negative in recent decades.

Terrorism and the Stock Market

Abstract: This paper examines the stock price impact of terrorist attacks. Using an official list of terrorism-related incidents compiled by the Counterterrorism Office of the U.S. Department of State, we identify 75 attacks between 1995 and 2002 in which publicly traded firms are targets. An event-study analysis around the day of the attacks uncovers evidence of a statistically significant negative stock price reaction of -0.83%, which corresponds to an average loss per firm per attack of $401 million in firm market capitalization. A cross sectional analysis of the abnormal returns indicates that the impact of terrorist attacks differs according to the home country of the target firm and the country in which the incident occurred. Attacks in countries that are wealthier and more democratic are associated with larger negative share price reactions. Most interestingly, we find that human capital losses, such as kidnappings of company executives, are associated with larger negative stock price reactions than physical losses, such as bombings of facilities or buildings. We discuss the implications of these findings for existing research on terrorism and for current policy debates regarding terrorism re-insurance programs.

Stock Market Development and Economic Growth: The Case of West African Monetary Union

Abstract: Stock market is an indicator of an economy financial health. It indicates the mood of investors in a country. As such, stock market development is an important ingredient for growth. The stock exchange of West African monetary union is fairly new compared to many countries. This paper examines the impact of stock market development on growth in West African monetary union. A time series econometric investigation is conducted over the period 1995 -2006. We analyze both the short run and long run relationship by constructing an ECM. Two measures of stock market development namely size and liquidity are used. We define size as the share of market capitalization over GDP and liquidity as volume of share traded over GDP. We found that stock market development positively affect economic growth in West African monetary union both in the short run and long run.

Minority Shareholders' Wealth Effects and Stock Market Development: Evidence from Increase-in-Ownership M&As

Abstract: This paper examines, using a global M&A data set, the relationship between the target firm’s minority shareholders’ returns and a country’s stock market development in deals in which large shareholders increase their ownership stakes. For the purpose of this study, we use two measures of stock market development: (1) turnover over GDP, and (2) turnover over market capitalization. We provide evidence supporting the view that minority shareholders in target firms gain significantly more in countries with high stock market development than their counterparts in less-developed markets. Our results are robust to several firm and deal characteristics and provide evidence to policy makers that the degree of stock market development is a key determinant in improving minority shareholders’ welfare.

Privatization and Finance

Abstract: This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchased stock in a privatized company. We show how sales programs have changed during the three historical eras of privatization: 1979-1990, 1992-2000, and 2002-2008, describe the principal methods that governments use to sell state-owned enterprises to private investors, and examine how governments choose between selling SOEs directly to existing operating companies or investor groups through direct sales (asset sales) or selling stock to investors through share issue privatizations (SIPs). We document and examine the role privatization has played in increasing the total market capitalization of global stock exchanges from $3.2 trillion in 1983 to over $62 trillion in 2007 - and to $45 trillion in late 2009 - and increasing the total value of shares traded increased from $1.2 trillion to $111 trillion over much the same period. SIPs have been the largest share offerings in history, particularly in emerging markets, and divestment programs have been so impactful that (fully and partially) privatized companies now account for roughly half of the entire market capitalization of non-U.S. stock markets. Privatized companies also dominate share trading in many non-U.S. markets, especially China - which now has the second highest annual value of shares traded. We show that investors have benefited from purchasing SIP shares, both in the short and long term, and attempt to answer the critical question: “what do governments have left to sell?” EU governments alone hold stakes in partially privatized firms worth over $650 billion, and emerging market governments (especially China’s) hold two to three times as much more.

Financial Stock Market and Economic Growth in Developing Countries: The Case of Douala Stock Exchange in Cameroon

Abstract: In this article Sims’ causality test based on Granger definition of causality was used to examine causality relationships between stock markets and economic growth in Cameroon based on the time series data from 2006 to 2010. Our findings suggest that the Douala Stock Exchange still doesn’t affect Cameroonian economic growth. Research has been made in this topic and found positive relationship between financial stock market development and economic growth, but in Cameroon the purpose of the government to develop economy, by creating the Douala Stock Exchange is still not reached. After running variance decomposition test of Cholesky, we found systematic evidence that the market capitalization affects positively the GDP. Our paper comes up with the opportunity given to the Cameroonian government to understand that it is time to find financial policies, to encourage companies and develop financial stock market culture, and enhance to push companies to initiate IPO instead of bank loans when money is needed to increase their investment.

What Explains Stock Markets’ Vulnerability to the 2007–2008 Crisis?

Abstract: This paper examines the determinants of stock markets'vulnerability to the 2007-2008 crisis. Given that the United States (US) was the crisis epicenter, the authors analyze the factors driving the co-movement between US returns and stock returns in 83 countries. The analysis distinguishes between the period before and after the collapse of Lehman Brothers. The findings indicate that the main channel of transmission was financial. There is also evidence of a "wake-up call" or "demonstration effect" in the first stage of the crisis, because countries with vulnerable banking and corporate sectors exhibited higher co-movement with the US market. However, despite a collapse in trade across countries, the analysis does not find support for this channel of transmission.

Tests of nonuniversality of the stock return distributions in an emerging market

Abstract: There is convincing evidence showing that the probability distributions of stock returns in mature markets exhibit power-law tails and both the positive and negative tails conform to the inverse cubic law. It supports the possibility that the tail exponents are universal at least for mature markets in the sense that they do not depend on stock market, industry sector, and market capitalization. We investigate the distributions of intraday returns at different time scales ($\ensuremath{\Delta}t=1$, 5, 15, and 30 min) of all the A-share stocks traded in the Chinese stock market, which is the largest emerging market in the world. We find that the returns can be well fitted by the $q$-Gaussian distribution and the tails have power-law relaxations with the exponents increasing with $\ensuremath{\Delta}t$ and being well outside the L\'evy stable regime for individual stocks. We provide statistically significant evidence showing that, at small time scales $\ensuremath{\Delta}tl15\text{ }\text{min}$, the exponents logarithmically decrease with the turnover rate and increase with the market capitalization. When $\ensuremath{\Delta}tg15\text{ }\text{min}$, no conclusive evidence is found for a possible dependence of the tail exponent on the turnover rate or the market capitalization. Our findings indicate that the intraday return distributions at small time scales are not universal in emerging stock markets but might be universal at large time scales.

The Impact of the Introduction of the Euro on Foreign Exchange Rate Risk Exposures

Abstract: This paper examines whether the introduction of the Euro in 1999 was associated with lower stock return volatility, market risk exposures and foreign exchange rate risk exposures for 12,821 nonfinancial firms in Europe, the United States, and Japan. We show that though the Euro led to a significant decrease in the volatility of trade-weighted exchange rates of European countries, stock return variances of nonfinancial firms increased after its introduction. However, the Euro was also accompanied by significant reductions in market risk exposures for nonfinancial firms in and outside of Europe. We show that the reduction in market risk was not as a result of changes in financial leverage, and that it is concentrated in firms with a high fraction of foreign sales in Europe, a high fraction of total foreign sales and larger market capitalizations. In addition to its impact on market betas, the Euro has a positive effect on the incremental foreign exchange rate exposures, particularly for multinationals.

A More Predictive Index of Market Sentiment

Abstract: Recently, finance literature has turned to non-economic factors such as investor sentiment as possible determinants of asset prices. Using mutual fund data, I calculate a new sentiment measure, a perceived loss index. The advantage of the loss index is that it can determine perceived risk for different categories of equities, including market capitalization, style and sector. Results provide evidence that the perceived loss index outperforms all other sentiment and systematic risk measures in predicting future medium run returns, especially for one- and two-year horizons. This evidence pertains not just to broad market returns but also to capitalization-style and sector specific indice returns as well. In addition, I provide evidence that the loss index can be used as a quantitative measure to detect bubbles and financial crises in financial markets.

Corporate Marketing in the Stock Market: The Impact of Company Identification on Individuals’ Investment Behaviour

Abstract: Purpose – The purpose of this article is to contribute to corporate marketing literature by examining how an individual’s identification with a company influences their willingness to invest in the company’s shares.Methodology/Approach – A set of hypotheses were developed based on theory, and survey data were obtained from 440 individuals in order to test the hypotheses. The data pertained to the individuals’ recent decisions to invest in particular companies’ shares, and to the degree of their identification with the companies’ identities. The analysis method was PLS path modelling.Findings – Firstly, an individual’s identification with a company was found to have a positive effect on their determination to invest in the company’s shares rather than in other companies’ shares that have approximately similar expected financial returns/risks. Secondly, company identification was found to elicit preparedness to invest in the company’s shares with lower financial returns expected from the shares than from other shares. Both influences were partly mediated by the individual’s willingness to give support to a company which they identify with.Research limitations/implications – The study pertains to company identification of individual investors; institutional (and professional) investors are beyond the scope of the article. Also, the sample focuses on investors in a single country (Finland), and the data may involve some self-reporting and retrospection biases.Practical implications – Considering corporate marketing in the stock markets, individuals who identify with the company are identified as worthwhile targets when the company seeks to attract new investors. Originality/Value of the paper – The article provides theoretical grounding for and empirical evidence of the positive influence of company identification on individuals’ willingness to invest in companies’ shares. It is a novel finding for corporate marketing literature that individuals express their identification with a corporate brand also through investing in its shares.

Growth Strategies and Value Creation: What Works Best for Stock Exchanges?

Abstract: In recent years, demutualized stock exchanges have increasingly engaged in M&A and alliance activities. To shed light on this topic, we investigate short-run share price responses to the formation of 110 stock exchange M&As and alliances in the period 2000–2008. Our findings show that the average stock-price responses to a stock-exchange M&A or alliance is positive. Stock exchange M&As create more value than alliances. For alliances, joint ventures generate more value than non-equity alliances. More value is created when the integration is horizontal and cross-border than when it is vertical and domestic. Evidence is also found for learning-by-doing effects in stock exchange integration activities. Finally, we find that the better the shareholder protection, accounting standards and degree of capital market development in the partnering exchange’s country, the higher the merger and alliance premium. These patterns also obtain when we examine long-run performance measures such as the three-year buy-and-hold abnormal return, change in ROA (ROE), change in liquidity, and change in market capitalization of IPO between years t-2 and t 2.

Stock market development indicators and economic growth in Nigeria (1990-2009): empirical investigations

Abstract: Stock market provides the bridge through which the savings of surplus units may be transformed into medium and long-term investments in the deficits units. It is reputed to perform critical functions, which promote economic growth and prospects of the economy. Empirical evidence linking stock market development to economic growth has been inconclusive even though the balance of evidence is in favor of a positive relationship between stock market development and economic growth. This paper explores the hypothesis that stock market development promotes economic growth in Nigeria and attempts to confirm its validity or otherwise, using quarterly data from 1990:1 to 2009:4 for Nigeria by employing vector error correction model (VECM) technique on the commonly used stock market development indicators. From the result, the model for the total value of shares traded ratio (vr ) has the best fit followed by the market capitalization ratio (mcr) model while the model for the turnover ratio (tr) lagged behind. The results for mcr and vr are analysed in this paper, as they performed better than the model for tr. From the result, it was revealed that the coefficient of the error correction term ECM (-1) carries the expected negative sign and is highly significant at 1.0 pe cent level. The model validates the hypothesis that the stock market promotes economic growth in Nigeria during the period of analysis. The F-test statistic of 10.88 shows the overall model fit is significant at 1.0 per cent. Similarly, the vr model shows that the ECM (-1) has the expected negative sign and significant at 1.0 per cent. The model favours the proposed direct relationship between stock market indicators and economic growth in Nigeria during the period of analysis. The F-test statistic of 13.39 shows that the overall model fit is significant at 1.0 per cent.

Liquidity and Market Efficiency: Analysis of NASDAQ Firms

Abstract: We analyze all NASDAQ firms with respect to their short-horizon return predictability, which Chordia et al. (2008) formulate as an inverse indicator of market efficiency. Our results confirm that increased liquidity enhances market efficiency, and show that this effect is amplified during periods with new information. After controlling for liquidity and information effects, we find that NASDAQ firms experience an improvement in market efficiency only from the sixteenth to the decimal tick size regimes. We further demonstrate that inferences of market efficiency are not uniform across the different portfolios formed on the basis of trading frequency, volume and market capitalization.

Determinants of web-based corporate reporting among top public listed companies in Malaysia

Abstract: The main objective of this paper is to examine the extent of Internet corporate disclosure among a sample of 100 top companies listed on Bursa Malaysia (based on market capitalization) for the year ...

Financial Stock Market and Economic Growth in Developing Countries: The Case of Douala Stock Exchange in Cameroon

Abstract: In this article Sims’ causality test based on Granger definition of causality was used to examine causalityrelationships between stock markets and economic growth in Cameroon based on the time series data from 2006to 2010. Our findings suggest that the Douala Stock Exchange still doesn’t affect Cameroonian economic growth.Research has been made in this topic and found positive relationship between financial stock marketdevelopment and economic growth, but in Cameroon the purpose of the government to develop economy, bycreating the Douala Stock Exchange is still not reached. After running variance decomposition test of Cholesky,we found systematic evidence that the market capitalization affects positively the GDP. Our paper comes up withthe opportunity given to the Cameroonian government to understand that it is time to find financial policies, toencourage companies and develop financial stock market culture, and enhance to push companies to initiate IPOinstead of bank loans when money is needed to increase their investment.