Participants Total Lack of information
1-5, 7-9, 11-18 16
Table 7.5 gives the results for focused coding 1, 2, 3, and 4 of question 2 and shows that 16 participants in the interviews agreed that the lack of institutional investors inhibited development of the market, causing failure of the market; while 15 interviewees stated that it caused lack of liquidity, all 18 perceived that it led to increased risk and 16 were of the opinion it resulted in lack of information.
7.2.3. The link between stock market development and economic growth
Although it is recognised that there is a correlation between economic growth and financial development, as also indicated by the previous chapter, the findings on the direction of the causal relationship between them can be questioned. Some researchers take the view that the financial markets accelerate the pace of economic growth by increasing the liquidity of global financial assets and facilitate risk diversification for investors, encourage investment decisions based on available information, increase productivity by encouraging corporate managers to work hard for the benefit of shareholders, and transfer savings to larger companies. Others argue that the growth of the financial sector results in growth in economic activity, given that the financial markets mirror the economy, therefore reflecting economic growth, and develop the market by providing the financial services and investment products necessary for economic development.
There is considerable debate in Saudi Arabia about the relationship between the local stock market and economic growth with the momentum given to the market in recent years, and this has been questioned, particularly after the series of sharp declines, which began in February 25, 2006, and saw stock market losses amounting to 52% of market value in 2007. However, the economy is growing at a healthy pace, with oil prices rising steadily. Furthermore, the Saudi government has raised the level of government spending through the largest national budget in the history of the country,
with estimated expenditure of 380 billion riyals and revenues of 400 billion riyals in 2007. Question 3, thus, aims to explore the direct research question of this study.
Question 3 (a) Would you please reflect on the link between stock market development and business growth? (b) What is the direction of causality? (c) Does the stock market contribute to economic growth and business development or vice versa? Please give a reason for your answer?) was set in an attempt to determine the interviewees’ perceptions of the link, the causality and the contributions of business development and stock market development.
Table 7.6: Stock market development and business growth Focused Coding 3(a)
1 Stock market development provides more financial services and mobilisation of financial savings 2 Stock market development is an inevitable result of
business development in the petroleum economy 3 Both stock market development and business increase
the profitability of providing financial services and accelerates economic growth
4 No relationship. The development of one is not necessary for the development of the other.
Focused Coding 3(b)
1 From stock market development to economic growth 2 From economic growth to stock market development
3 From both
4 No direction of causality Focused Coding 3(c)
1 Yes, the stock market contributes to economic growth
Financing of small projects
Reduce capital cost
2 No, it does not contribute to economic growth.
Importance of oil
government intervention
3 Vice versa
Theme 3(a) There are four opinions, three in agreement that there are different links between business development and stock market development, while there is also an opinion that there is no link. business development in different ways, or vice versa.
According to table 7.6, various positions were taken by the participants on each of the issues covered in this section. Some expressed positive opinions, while some others could not see any correlation between economic or business growth and the stock market.
Table 7.6 shows the results of the focused coding for question 3 (a). It shows disagreement among the interviewees on the link between business development and stock market development. Four different perceptions emerge as a result: stock market development provides more financial services and the mobilisation of financial savings; stock market development is an inevitable result of business development in the petroleum economy; both stock market development and business increase the profitability of providing financial services and accelerates economic growth, and; there is no relationship, as the development of one is not necessary for the development of the other.
Table 7.6 also shows the results of the focused coding for question 3 (b). It reveals argument among the interviewees regarding the direction of causality. As can be seen some argue that the causality runs ‘from stock market development to economic growth’, where the development of financial institutions and markets increases the savings and channels them into productive investments. Some interviewees thought that the financial markets accelerated economic growth by increasing the liquidity of financial assets, facilitate risk diversification, and encouraged investment decisions based on the information available, and increase productivity. Some other interviewees argued that the observed causality runs ‘from economic growth to stock market development’, and this opinion confirms the negative role of the financial system. According to this view, the development of the financial sector occurs as aggregate business growth. Moreover, continued economic expansion requires more financial services and instruments. Other interviewees argued that it is a ‘bi-directional causality’, as business growth makes the development of the system of financial intermediation is profitable that encourages introducing more financial services and instruments, in the same time establishment of a functioning and development of stock market lead to a rapid economic growth and. The rest of the participants argued that there is ‘no direction of causality’.
In addition, table 7.6 shows the results of the focused coding for question 3 (c), which asked whether the stock market contributed to economic growth or not, or vice versa, in the interviewees’ opinions and perceptions. Some of the respondents were of the opinion that the stock market contributed to economic growth, with some stating that this contribution came through the financing of small projects and others that it was achieved through the reduction in capital cost. Others took the view that it did not contribute to economic growth, with some giving the importance of oil in the Saudi economy as the reason for this, while others stated that it was because of the strong government intervention in the economy. Conversely, another group perceived that the influence was bi-directional.
Table 7.7 presents the focused coding No. 1 for question 3(a). It shows that nine participants believed that stock market development was linked to economic growth because it provides more financial services and mobilisation of financial savings.
Table 7.7: Focused Coding Number 1 for Question 3(a) Providing more financial services and mobilization of financial savings
Participants Total Stock market development provides more financial services and mobilisation of financial savings
5,7,9,10,12,13,14,17,18 9
Table 7.8 presents the focused coding No. 2 for question 3(a). It can be seen that 3 interviewees held that there was a link between stock market development and economic growth as the Saudi oil economy would inevitably lead to such development.
Table 7.8: Focused Coding Number 2 for Question 3(a) It is an inevitable result of business development in petroleum economy
Participants Total Stock market development is an inevitable result of business development in petroleum economy
1,6,8 3
Table 7.9 presents the focused coding No. 3 for question 3(a). It reveals that three participants were of the view that the profitability of financial services provision was increased and economic growth accelerated by both stock market development and business.
Table 7.9: Focused Coding Number 3 for Question 3(a)
Both increase the profitability of providing financial services and accelerates economic growth
Participants Total Both stock market development and business increase the profitability of providing financial services and accelerates economic growth.
3,11,15 3
Table 7.10 displays the results of the focused coding No. 4 for Question 3(a). It can be seen that 3 participants felt that there was no relationship between stock market development and economic growth because the development of one is not necessary for the development of the other.
Table 7.10: Focused Coding Number 4 for Question 3(a) No relationship.
Participants Total No relationship. It is not necessary to the development of one of them standing on the other.
2, 4,16 3
In Table 7.11 can be seen the results of the focused coding No. 1 for question 3 (b). It shows that 6 participants believed that stock market growth led to economic growth.
Table 7.11: Focused Coding Number 1 for Question 3(b) From stock market development to economic growth
Participants Total From stock market development to economic growth
9,10,13,14,17,18 6
Table 7.12 presents the results of the focused coding No. 2 for question 3 (b). It shows that 5 participants held that the causality ran from economic growth to stock market development.
Table 7.12: Focused Coding Number 2 for Question 3(b) From economic growth to stock market development
Participants Total From economic growth to stock market development
1, 5, 6, 8, 12, 5
Table 7.13 gives the result of the focused coding No. 3 for Question 3(b) and shows that 4 participants were of the opinion that the causality was bi-directional.
Table 7.13: Focused Coding Number 3 for Question 3(b) From both
Participants Total From both
3,7,11,15 4
Table 7.14 give the result of focused coding No. 4 for question 3 (b) and shows that 3 participants perceived that there was no direction of causality.
Table 7.14: Focused Coding Number 4 for Question 3(b) No direction of causality
Participants Total No direction of causality
2, 4, 16 3
Table 7.15 depicts the results of focused coding No. 1 for question 3 (c). It shows that 12 participants were of the opinion that the stock market contributed to economic growth through financing and encouraging small projects, while the same12 believed that the stock market could reduce capital costs.
Table 7.15: Focused Coding Number 1 for Question 3(c) Yes, Stock market contributes to economic growth through
Participants Total Motives
5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 17, 18
12 Financing of small projects
5, 6, 7, 9, 10, 11,12, 13, 14, 15, 17, 18
12 Reduce capital cost
Table 7.16 reports the results of the focused coding No. 2 for Question 3 (c). It shows that 3 participants felt that the stock market did not contribute to economic growth because of the important role played by petroleum in Saudi’s economy, and the same 3 participants expressed opinion that the stock market did not contribute to economic development because of the considerable contribution of the Saudi government to the economy through the oil revenues.