CAPITAL MARKET DEVELOPMENT AND CORPORATE GOVERNANCE

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1.0 The Importance of Capital Market Development

1.1 Enhancing Access to Financing for Businesses

Technical financing is as important as any other type of investment business

opportunities, particularly in emerging markets where money may be limited. Powerful

financial markets are a factor of the available ways to obtain funding for companies

through issuing equity and debt securities, hence companies can find a way to grow and

expand. A smoothly-running capital market will allow businesses to attract a wide range

of investors, including institutional investors as well as retail investors, who will bring the

funds business require for running the operations and growing strategy. The financial

access is the week-point that start-ups usually confront with and they feel challenging to

consider or to initiate a new enterprise. Credit enables firms not only to solve the

liquidity problem by providing capital but also to rise innovative ideas and help new

products and technologies to be introduced (Amran et al. , 2018). What is more, SMEs

have an opportunity to use multiple financial instruments which are suitably tailored to

their companies’ individual risk profiles and funding needs enabling to grow and stay

financially resilient (Demirgüç-Kunt et al. , 2020). In addition, sound corporate

governance approach with all the underlying practices like transparent financial

reporting and accountability mechanisms gives more power to the investors' viewpoints;

hence, it becomes easy for companies to access funding. While efficient governance

frameworks will help to avoid financial mismanagement and ensure that companies are

managed in the best interests of all the owners (shareholders and stakeholders),

Claessens & Yurtoglu (2013) stress. This will give in the helping of investors to make

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informed decisions due to the constant flow f capital into the market minimizing short

term investment in shortage of necessary resources. Similarly, to this, the secondary

markets development bring the liquidity to investors and in turn encourage capital

markets involvement and investments (Levine, 2005). The development of financial

markets by means of provision of funding sources and establishment of effective

corporate governance principles is critical for the sustenance of a robust business

landscape as well as economic progression. The link between the availability of funds

and sound businesses that are known as access to the capital and mature governance

is one of the main engines of corporate growth and general health of emerging

economies.

1.2 Promoting Efficient Allocation of Capital Resources

Capital market's primary goal is the efficient allocation of resources, which is a

prerequisite of a well-functioning area of finance. Thus, capital markets make use of the

features that allow the investors to calculate the risk and evaluations of the investments

enabling the flow of funds to the most productive ones (Aluchna & Roszkowska–

Menkes, 2021). This rational distribution of resources is high for opting the highest

possible productivity and the resources do not go in the direction of non-labourable

projects. Stocks exchange which carries out the price mechanism through the

aggregated actions of people with the information on solid projects redistributes capital

to the schemes expected to yield the highest returns (Afogo, 2016). In addition to this,

the presence of widely varied investors– from institutional investors to retail traders –

increases the market depth and liquidity, which further enables price discovery and

more realistic marking of assets (as per Baker et al. , 2018). Further, the proper

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governance structure guarantees optimal utilization of capital in the companies as well

as ensuring accountability of management for investment decisions made and bringing

shareholders interests into line with those of management. The governance system

includes board oversight, performance-based compensation & auditing standards all of

which aim at effective resource use and management (Claessens & Yurtoglu, 2013).

Moreover, regulations that enhance disclosure and diminish uncertainty are crucially

important since they are necessary for keeping the investors confidence in markets and

for performing them smoothly (Levine, 2005). There is also the function of financial

analysts and credit rating agencies to be considered as it is they who provide rating and

forecasts that are critical in making investment decisions (Bhagwat, Yildirim,

2003). Ffinancial markets are a crucial vehicle in providing capital to such profitable

undertakings as well as ensuring a transparent and accountable allocation of financial

resources, which in turn sustains economic growth and optimizes resource utilization. In

the economy in general, obtaining the right allocation of capital funds stimulates

technological development, infrastructure building, and the economy of nation as a

whole, thus securing positive and lasting growth in the country.

1.3 Fostering Economic Growth and Innovation

Financial markets hold the key to the occurrence of economic growth and innovation

and this key is in the form of the capital assets, which can be used to fund a business or

invest in any desirable asset. With financial stability granted them by a constant flow of

funds, businesses are in a better position to invest in innovation and technology

development which lead to enhanced productivity and lesser competition (Amran et al. ,

2018). The ability to easily take on capital by startups and smes is the what is most

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significant in this regard because it is these business entities that often are the engines

of economic growth and job creation. Financing that can be used in new and risky

ventures has got innovation which is a powerful factor in an economy since it enables

the creation of new sectors and their employment capacity. Besides, financial markets

are found equally effective in the efficient communication of any kind of information,

which is an asset to channel the resources more methodically to potential fertile

investment areas (Aluchna & Roszkowska-Menkes, 2021). The transmission of

information in financial markets is made possible by financial analysts, credit rating

agencies, and other market professionals who evaluate and disseminate pertinent

things that investors need to choose investment chances. The effectiveness of the

markets is improved, as well as investment decision-making, by such activities. Good

corporate governance is instrumental to the long-term value creation and the

sustainable growth of firms because it demands management activities that make sure

that the interests and profits of a firm are in line with the interests of its shareholders

and the stakeholders of the company (Ararat et al. , 2017). Stock markets improve and

grow when having in place good governance practices such as transparent financial

reporting, accountable management, and ethical business practices since they generate

investor trust and more capital is mobilized in the capital markets (Claessens &

Yurtoglu, 2013). Expertly designing financial markets and sturdy governance

frameworks can be instrumental in the generation and innovation of economic

conditions as well as getting resources to the industries that are constantly evolving and

have a future-oriented approach. Therefore, in the framework of financial market

development for economic success which requires ongoing reforms and innovations in

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the financial market infrastructure and governance practices determining how viable the

long-term economic situation will be (Beck et al. , 2009; World Bank, 2020).

1.4 Attracting Foreign Investment and Global Integration

Coming the money from abroad and cross linking international integration is the key

success of emerging economies. Foreign capital does not only represent capital being

channeled into local companies but also it is loaded with advanced technologies,

management skills and global market access, which can help improve export earnings

and economy of the country. The foreign investors tend to be more enthusiastic towards

investing in markets that have well developed financial systems and effective corporate

governance mechanisms. Such markets not only give confidence in the transactions,

but also eradicate the inefficiencies in dealing with the unfamiliar environment.

Unlikewise, Ararat (2017) supports this view. This dichotomous governance system

comprises, among others, the transparent and detailed financial reporting, stringent

audit standards, and fair investor rights all of which lead to slightly more certain and

secure investment environment. Registration of investments, having legal protections

for investors, and well-managed markets build good investor confidence which help a

country to link up with the global economy. This connectivity bridges borders and

unlocks capital movements, therefore, countries exercise more freedom on global

investment and commerce that may lead to high economic growth and improving

standards of living (Afego, 2016). In addition, these companies are able to generate

something that local companies can utilize to stimulate local industries by just creating

the supply chain, thus the local entrepreneurship and innovations are being fostered.

The injection of foreign direct investments into a certain place can empower the workers

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by enabling them to gain new skills and knowledge on which they develop their

capabilities against the time (Javorcik, 2004). Besides, countries that possess an

advanced financial market have better possibilities for distributing and effectively using

the foreign investments as they are largely capable of allotting the capital in a proper

way and of supporting the development of dynamic sectors. Nevertheless, for that

reason the development of reliable financial markets and clear governing rules is the

first need to be given which, consequently, if fulfilled will become a valuable attractor of

foreign investment and attendance to the world economy organized system. On the one

hand, it helps emerging countries to benefit from global capital markets and on the

other, it is the source of sustainable development, as it tries to convince business

community to follow ethical business practices and practice long-terms economic

planning.

2.0 Corporate Governance Principles and Best Practices

2.1 Accountability and Transparency in Decision-Making

The governance effectiveness is a matter of reliance of the accountability and

transparency in decision-making. Corporate boards provide a mechanism that ensures

the business operations are tuned to the shareholders’ interests and the stakeholders'

expectation. From that transparency, we mean clean and precise information through

the disclosure of financial and operational data that allows stakeholders to make

informed opinions (Bebbington, Unerman, & O'Dwyer, 2020). Transparency transfers to

financial data but also other organisational information like corporate goals, policies for

risk management, and social and environmental performance thereby giving

stakeholders a more encompassing view about what the company is doing and how it

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performs. To begin with, accountability is supposed to ensure that those in decision-

making positions, get held to account for their actions so that they develop a culture of

integrity and morality in the organization (Barros, Boubaker, & Hamrouni, 2022. ). Being

accountanted here covers not only financial responsibility but also moral conduct,

compliance with the regulations and laws and the fulfillment of the obligations owed to

the shareholders. Corporate governance frameworks which provide a basis for the

application of such principles are important in that they play a key role in building both

trust and confidence amongst investors, customers and other stakeholders. For

instance, disclosure and enforcement requirements are strict, and internal audit

functions are sophisticated, you can assure all of that. For instance, overseeing by

independent boards, involvement of shareholders, and platforms proving opportunities

for engagement among stakeholders – these are among mechanisms that contribute to

accountability and thus scrutiny and feedback from all involved parties. Hence,

emerging businesses that happen to be transparent and hold “their bosses”

accountable, such organizations are more strategic in their growth and will keep on

progressing. These entities are able to smoothly cope up with crises and flourish in an

environment where forces are working in a complex manner as the stakeholders feel

assured and confident about their leadership and management styles. Besides,

complying with the legal framework and introducing documentation that lets

stakeholders track things is appealing to investors because the latter can mitigate risks

and align their investments with environmental, social, and governance (ESG) criteria

(Friede, Busch, Bassen, 2015). Transparency and accountability, which are main

elements of anti-corruption, should become the top priorities for all corporate leaders

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and regulators who are looking not only for good business practices but also for

sustainable development.

2.2 Shareholder Rights and Equitable Treatment

Corporate governance encompasses the corner stone of the respect and equity for

shareholders rights. This idea presupposes the creation of shareholders rights to act in

certain significant issues, that is, corporative voting and participation in major decision-

makings (Black et al. , 2018). Treating all shareholders, the minority and foreign

investors alike, equitably is key to maintaining the investor confidence level and wasting

the necessary capital inflow. The implementation of solid and enforceable policies that

guarantee fair share of rights in corporations is achieved through clear and transparent

voting rights, dividend protocols as well as schemes to solve labor disputes (Brown,

Beekes, & Verhoeven, 2020). Through safeguarding these rights, firms can eradicate or

at least reduce the danger of being expropriated by the controlling shareholders, thus

increasing the desirability of investment in their company. The impartial and fair course

of conduct with shareholders besides, also avoids the possibility of financial imbalances

and inefficiencies in the financial markets. Fair treatment is part common sense

principles of social responsibility and ethical management. With respect and protection

of their rights the shareholders are more inclined to be actively involved in the company,

delivering constructive feedback as well as support for the long-term strategic objectives

(Shleifer. , Vishny, 1997). This alignment facilitates the growth of trust and supporters

cooperation thus leading to a transparent and reliable approach to management

(Bhagat & Black, 2002). Companies that place primacy upon fair and inclusive

governance not only win stakeholder relationships but also negotiate the complicated

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social and regulation environment effectively (Freeman, 2010). Thus, in addition to

being based on the legal and ethical standpoints, companies that embrace equal

shareholder treatment also strategically pursue creating long-term value and positive

social influence. Through maintaining shareholder rights and favoring equal treatment

Company can develop their status by creating stronger competitive position, increasing

investor confidence and driving sustainable growth and welfare to all parties concerned.

2.3 Effective Board Structure and Composition

The arrangement and makeup of the board of a director matter greatly in the

governance aspect of a company. Governance is particularly important in the case of

strategic decisions because board effectiveness led by a diverse mix of individuals’

skills, experience, and outlook can significantly enhance decision-making processes

and corporate oversight (Barros, Boubaker,& Hamrouni, 2022). Good boards usually

involves independent directors that make their judgments objectively and do not agree

with management’s decisions. This ensures that the decisions made are in the best

interest to the shareholders (Boubaker, Nguyen, & Nguyen, 2018). 'Independent

directors' is a crucial element of it as they provide outsider view to the railway sector,

alternative view and impartiality in board discussions; reduce the conflicts of interest

risks, and improve the accountability. (Hermalin & Weisbach , 2003)What more, there ,

including the specific definition of each member’s position, regular assessment of board

performance, and detailed orientation and training are four of the indispensable

components an enterprise’s effective board structure (Black et all,2018). The motivation

facilitates clarity of objectives and leadership communication, making sure that the

officers have the required skills and knowledge to perform their roles effectively.

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Nowadays, non homogeneity in the boardroom, including gender, ethnicity, and

professions, was proven to help the quality of governance due to the impact of the

varied perspectives and less of group thinking. Statistics on this topic says that the

diverse organisations tend to consider more points of view and are making improved

decisions in the long run, which boosts the financial performance and decreases the risk

management level (Adams & Ferreira, 2009). Moreover, diverse boards with a wide

range of knowledge, skills and perspectives will be more adept at looking beyond their

interests and taking into consideration the issues of a vast array of stakeholders such as

employees, customers, and the community (Carter et al. , 2003). As such, firms which

allocate sufficient funds to develop a qualified and cohesive board have the leadership

advantage in fast-paced and complex work environments that translate into superior

value creation over time. Diversifying the make-up of the boards and practicing inclusive

leadership offers a better governance baseline. It is also demonstrating a company`s

willingness to practice responsible and ethical leadership (Campbell & Mínguez-Vera,

2008).

2.4 Risk Management and Internal Control Systems

The most important thing for protecting the company`s assets and achieving long life is

a robust risk control and its monitoring systems. These types of systems will help to

discover, evaluate and respond to the looming risk that may have harmful effects on the

organization like operational and financial risks. While others include strategic and

compliance risk. Risk management should entail the development of a risk-conscious

environment, the inclusion of risk issues into the strategic planning, and the

continuous monitoring and assessment of risk exposures. A risk-conscious culture,

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which involves everyone in the organization to anticipate risks and proverbially deal with

them, stems from the opinions and decisions being made at all levels of the

company. This involves cultivating an environment where employees are not only able

to raise their queries and do their bit for risk mitigation, but also feel free to

communicate them. Unlike internal control systems that focus on implementation of

policies and procedures for the reason sanity of financial reporting as well as

compliance with laws and regulations, the external control systems entails preventative

controls to prevent loss of company assets through embezzlements and loss of

earnings due to fraud as well as manager and staff misbehavior. The systems involve

inner control mechanisms where segregation of duty, auditing and self monitoring of

mistakes, frauds and misconduct prevention are focused. Specifying the duties and

responsibilities of everyone within organization structure, as well as streamlining the

internal control systems helps to reduce the opportunity for wrongdoings and ensures

that the resources employed are highly productive and utilized effectively.

Organizations having robust risk management and internal control systems are usually

in a better place to preempt and effectively respond to emerging risks; by doing so, they

protect shareholder value and ensure the organization’s ability to withstand such

ordeals. Maintaining the system is an ongoing procedure that involves continuous

dedication from board and senior management members to respectively ensure a

culture of constant improvement and vigilancePeriodic risk assessments and revised

controls testing are some of the approaches which pinpoint weakness and guarantee

suitability in handling risks in an ever-changing context. Instruction of employees to

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know their responsibilities and roles in risk management and sound internal control

systems is a key corporate venture of which companies should not forget.

3.0 Regulatory Framework for Capital Market Development

3.1 Establishing Strong Investor Protection Mechanisms

The capable investor protection policies are vital for building trust in the financial

markets and encouraging investors to participate voluntarily. Among these mechanisms

are regulatory and legal channels where investors' rights are protected, fair

representation to all is given, and risks of frauds and misconduct are addressed (Denis

& McConnell, 2020). The set of insurances that make the investor protection effective is

made of transparent disclosure requirements, securities laws enforcement, and investor

dispute resolving mechanisms. Transparency disclosure requirements need to be such

that corporations be required to duly furnish all investors with information that would be

factual, timely, and related to performance, operations, and risk exposures (Larcker &

Tayan, 2012). Thus, they will be able to do an excellent risk and equity consideration for

their investments. Securities laws that are enforced make fraud both less likely and

ecosystem more ethical. Regulators are notable bodies that are in charge of monitoring

compliance with these regulations and putting consequences for those that violate them

to safeguard for the interests of investors (Black et al. , 2018). Furthermore, the

provisions for conflict resolution like arbitration or mediation, contribute in resolving

investor grievances in the instance of investment disputes either with the issuing

company or any contradictions with other shareholders in the market (Kerins et al. ,

2019). With the implementation of clear rules and standards, regulators will contribute

positively to market integrity and will simultaneously gain the advantage of reducing the

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informational asymmetries occurring in the markets (Cornett, Marcus, & Tehranian,

2017). Secondly, when transparency and accountability mechanisms are entrenched in

corporate governance a good investor protection is realised. Besides, board

independence oversight is the greater management’s faith to stakeholders and adhering

to the sound business practices since the board has the right to act independently

(Hermalin & Weisbach, 2003). External auditors should not be involved in any conflict of

interest to maintain auditor independence. As a result, the integrity and the credibility of

financial records increases, this allows investors the assurance that the information

disclosed is accurate (Abbott and Parker, 2000). On the other hand, sound and internal

control systems in companies applied by the company is meant to check errors that

arise and make Falsehood, which is of influence in investors' assets and interests.

3.2 Promoting Fair Competition and Market Integrity

Providing level playing field and market integrity that comprises fundamental qualities of

well-operating financial sector are the main principles. Regulatory authorities are the

key actors that make sure that the market operates equally for all the participants by

discouraging manipulative behaviour and market misbehaviour that, can destroy

integrity (Chong & Lopez-de-Silanes, 2021). Shaping the fair competition includes

implementing antitrust laws, preventing market manipulation and insider trading, and

regulating the market by allowing full transparency of the markets (Caprio, Croci and

Del Giudice, 2018). Antitrust laws are generally designed to prohibit large companies

from carrying out monopolistic actions and to help bring out competition, and this in turn

ensures that all players in the field are able to innovate while at the same time operating

efficientlyIt is important to try to avoid market manipulation and insider trading so that

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market integrity and confidence in investors` will be kept on an appropriate level. The

irregularity of insider trading deals with trading of securities according to unseen public

information, which actually gives insiders the uneven advantage against other market

players (Cohen & Malloy, 2018). Regulation of venues and intermediaries for trading is

necessary as it barely detects and deters abusive practices like front-running and

spoofing which are dangerous to the fairness of the marketplace. Regulators can further

efficiency, avoid systemic crisis and facilitate lasting economic growth by being fair in

their regulatory process and doing control over market integrity. Fair competition by its

nature sparks creativity, better economy, and efficiency resulting in boost in production.

This is the basis of economic growth that is characterized by favorable prices and high

quality products and services (Stigler, 1982). Market integrity leads to the inflow of

capital and allocates it equitably according to the level of risk of the investment, which in

turn, results in capital formation and allocation (Fama, 1991). On the other side,

regulating the market in a way that protects market integrity helps to avoid emergence

of financial crises and systemic disruptions that may cause severe economic issues in

the end (Gorton & Metrick, 2012). Accordingly, regulatory actions necessitate

enterprises to be fared and market order to be maintained so they can sustain the

stability and efficiency of markets which this turns around the complete system towards

greater economic prosperity and well-being.

3.3 Ensuring Adequate Disclosure and Reporting Requirements

An appropriate disclosure and reporting system is found to be as indispensable as it

provides for transparency and permit the investors to make well-informed decisions.

Regulation authorities enforce companies exiting up-to-date and precise details on their

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financial results, operations and risk management inclusive in public domain (Denis &

McConnell, 2020). Disclosure requirements comprising comprehensive disclosure

information enable investors to assess financial viability and prospects of companies,

thus promoting capital allocation which is efficient to a large extent and helps in

managing risks (Cornett, Marcus, & Tehranian, 2017). Complementary to the growing

importance of financial reporting, investors, too, consider the filed information as all that

they need while making an evaluation of investment opportunities, undertaking risk

assessment and making decisions about the allocation of their capital (Barth et al. ,

2012). In addition, this allows fairer dealings in the markets where information is

accurately presented causing the prices to be more realistic. Investors looked upon as

the major stakeholders can be provided with the right kind of relevant and reliable

information from time to time. This allows them to make the most accurate judgments

on the company’s worth which in effect helps to create a level playing field in capital

markets (Barth et al. , 2001). The United Nations along with many countries aim to

develop common international accounting standards under International Financial

Reporting Standards (IFRS) which works towards streamlining the accounting practices

and the comparability and transparency across various systems of balance sheets.

Through the mandatory disclosure, reporting requirements, regulators will enhance

none other than investor protection, promote market integrity, and assist in the capital

allocation. Disclosure of true and authentic financial information sets the basic

foundation of investment possibilities and effective capital markets (Bushman et al. ,

2004). Investors are willing to bring in their funds only to companies that provide clear

and believable information which in turn translates to the liquidity of the financial

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markets (Demsetz, 1968). Along that same line, improved reporting minimizes costs for

firms whereby investors' risk perception is lowered resulting in low funding costs which

benefit the organizations and investors face. This being the case, meaningful regulatory

changes that are targeted at the disclosure and reporting standards are important,

because they contribute to the market orderliness and attractiveness, resulting in

investor confidence and overall market stability.

3.4 Fostering Collaboration Among Regulatory Authorities

The decision on shaping concomitant responsibility among the regulatory agencies is

required to address transnational problems and establish stable global financial

systems. The international financial system on the globe is financially interconnected,

making it prone to infection with customers and is also puzzled by the challenges of

regulatory arbitrage (Chong & Lopez-de-Silanes, 2021). Coordination can be achieved

through mutual assistance among those regulatory agencies which support the sharing

of standards, exchanging information, and common regulatory and supervisory efforts

(Caprio, Croci, & Del Giudice, 2018). Initiatives such as FSB (Financial Stability Board)

and BCBS (Basel Committee on Banking Supervision) form key places for the joint

global cooperation and on arrangement of central bank related issues (Denis &

McConnell, 2020). These organizations work as community platforms that open a

communication channel among different states' supervisors where they can share licit

experiences, outlining forthcoming risks and tackling the challenges altogether by

developing a single or standard of medium (Lastra, 2019). Acting in unison, authorities

can take measures at the regulatory level, which combats huge risks and establishes an

efficient financial market. This kind of teamwork makes the investors trust and gain

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confidence in such markets because it reveals the magnitude at which bankers deal

with financial issues with the adoption of quick measures that address the challenges.

Apart from this, there can be work among the regulatory authorities which lead

establishing a situation where any firm that may take advantage of the jurisdictions'

differences to conduct a circumvention of applicable laws is severely vetted and

becomes subject of either negative publicity or legal action (Claessens et al. , 2010).

Provided with close collaboration of supervision activities and information exchange,

regulators can trace, and ultimately tackle, the existing loopholes in the regulatory

framework facilitating the appearance of regulatory arbitrage and a more leveled

marketplace (Demirgüç-Kunt et al. 2002). In addition, this may entail that the dialogue

between the regulators is a fundamental element of financial stability and resilience in

the financial systems, being complex and more and more diversified.

4.0 Corporate Governance Challenges in Emerging Markets

4.1 Concentrated Ownership and Minority Shareholder Protection

The ownership structures that are highly concentrated when a considerable amount of

securities are controlled by a small number of major shareholders can raise issues such

as protection to minority shareholders and governance. (Drobetz, Schilling, & Schröder,

2018). Unlike other business entities, a private business is governed by the majority

controller. Such a situation may make the majority controller to serve her or his interests

indifferent of other entities which business or interests are controlled by minority

shareholders. Such problems stem from weak frameworks and enforcement

mechanisms defined by the law; in such cases minority shareholders have no other

alternative but to abide by such decisions even though they may experience

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expropriation or abuse of control (Djankov & Ramalho, 2021). The key to this is the

existence of clever regulatory policies that create conditions for minority shareholder

protection, such as disclosure requirements, independent overseeing of directors, and

activism of shareholders (Enriques & Volpin, 2020). The rule of disclosure necessitates

companies to promptly give out transparent data to shareholders thus, they can make

astute investment decisions & management can be held accountable by the investors

(Bushman, Sakellariou and Borisova, 2004). A sole management, which conducts its

oversight on independent board, must act in the best interest of all shareholders,

including minorities, and clearly is that check imposed on the power of controlling

shareholders (Hermalin & Weisbach, 2003). Another important point is that, among

minorities, shareholder activism can be a means for minority shareholders to engage

with management in the long-term to promote their interests/objectives. In the past

several years, there has been increased awareness and enhancement in the activities

of shareholders which, by their participation, helps to address governance deficiencies

and further advance government accountability (Gillan & Starks, 200Through the use of

their joint influence, minority shareholders would be able to create a pressure on the

corporations similar to their size so that they would do changes in internal policies which

would lead to transparency, accountability, and value creation (Brav et al. , 2008).

Regulatory bodies ensure the establishment and the observance of these principles by

overseeing the companies to ensure they follow good corporate governance principles,

including the protection of the interests of minority shareholders (La Porta et al. , 2006).

The formulation of appropriate regulations is significant as it acts as censure of the

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hazards that emanate from the control ownership structures and formation of the fair

and equitable context with all shareholders.

4.2 Inadequate Enforcement of Regulations and Laws

Poor law and rule enforcement is not the less real challenge posed to corporate

governance effectiveness and market integrity, even in the most developed countries

(Farag & Mallin, 2018). Imprecise legal enforcement leading to lack of restraint exerted

on companies, which in turn may lead to unethical or illegal processes and weaken

investor trust. Furthermore, a relaxed enforcement can help undermine the credibility of

the regulated frameworks so much that they end up capturing these regulations and

arbitrage regulation. Enhancement of the monitoring and enforcement powers, the

regulation of all the business operations, and the imposition of penalties should be

applied as a measure to prevent control of the business by managers, individuals, or

certain groups (Drobetz et al. 2018). Efficient enforcement is based on the integrity of

regulators with right amount of resources, knowledge, and independence to assume the

roles of investigators and prosecutors of offenses (Stulz & Williamson, 2003).

Regulatory agencies have therefore been given the mandate to carry out monitoring

and compliance checks (audits, inspections, and investigations), as described in Laeven

& Levine (2009). What is more relevant are the coordination of the regulatory agencies

and the criminal justice as they are the ones that do well in addressing the complex

crimes that cross wider boundaries. Besides that, the imposition of punishments that

have deterring consequences, such as fines, sanctions and criminal prosecutions,

provides conviction that the violations would not be accepted at all while restoring the

confidence in integrity of financial markets (La Porta et al. , 2006). Finally, the

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enforcement efforts must cover incentives measures to organize self-regulation within

the firms and evolve a corporate culture that complies with regulations (Bushman et al. ,

2004). This can be facilitated by way of training courses, formulations of codes of

conduct, and financial rewards for those firms that show high level of responsibility in

conducting their operations and respecting good corporate governance practices

(Adams et. al. 2010). The strong rule of law and the regulations finally is very important

for self-regulation of the capital markets and investors’ protection and the fair play of the

financial system (Claessens et al. , 2010).

4.3 Lack of Institutional Investor Activism