Scholarly record

LATVIAN STOCK MARKET ENHANCEMENT SCENARIOS: IS IT POSSIBLE TO REACH NEIGHBOURING COUNTRIES- LEVEL?

Aija Pilvere

Abstract

Stock market development is crucial to any economy, as a funding alternative to bank lending, as well as the value added to the overall economy. One of the measurements to evaluate economic advancement is stock market capitalization (mcap) to gross domestic product (GDP), in this indicator Latvia is in one of the last places in the European Union (EU). Therefore, the main goal is to assess the landscape and Latvia’s potential to reach neighboring countries’ mcap to GDP level using existing registered companies, as well as to evaluate how suitable are registered Latvian companies’ main financials, when comparing them to the mean value of already Baltic States stock market listed companies’ financial value indicators, which was obtained using cluster analysis. Based on the comparison, author created financially supported scenarios of stock market development possibilities and in line evaluated the potential of those scenarios for Latvia to reach other Baltic States, EU and Nordic countries stock market level in terms of mcap as fraction of GDP. Author created an assessment model, which indicated that Latvia has the possibility to reach Estonia’s and Lithuania’s level of mcap to GDP, to do it, Latvia’s stock market capitalization should more than double. To reach this goal, 5-10% of Latvian registered large and mid-size limited liability companies (Ltd) and joint stock companies (JSC) have to become listed on the Riga Stock exchange. Analysis also revealed that the EU and Nordic countries mcap to GDP level is unattainable in the upcoming years. In the coming years, Latvia politicians should work to encourage the registration of new companies and to promote the development of growth of the already registered companies, to enlarge the pool of possible companies to join the stock market and overall to promote economic development.

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