Development of Corporate Bond Market: Regulatory Impact

Capital markets working in confidence with sufficient diversity of financial instruments make positive contributions to private sector financing oppurtinities and financial depth in the markets. It is observed in the Turkish economy that capital market finance broadly depends on IPO market rather than fixed income or bond financing. In this paper, we analyse why corporate bond market do not work efficiently and whether credit rating agencies (CRAs) and using corporate bonds as colletaral/portfolio asset in stock market transactions/portfolio management play a positive role for the development of the market. It is concluded however increasing effectiveness in credit rating and using bonds as colleteral/asset in stock market transactions/portfolio management would help to reduce pricing, liquidity and valuation problems in the corporate bond market. But it is believed that merely changes in regulations would not sufficient enough to solve structural problems (crowging-out effect, alternative financing oppurtunities (i.e. debt financing from domectic/foreign creditors) and inadequate institutional investor demand) and hence develop the market.