Business Finance in Less Developed Capital Markets

YAMAN SEVIL KUTAY ASIKOGLU, and I. ÖZER ERTUNA

Changes in the forms and delivery modes of financial services offered by commercial banks and other nonbank financial intermediaries have taken place at an unprecedented pace during the last several decades in developed Western financial markets. The development and growth of investment companies and mutual funds as intermediaries in this highly innovative environment took place during the postwar period, especially in the 1960s. Serving as media through which individual investors acquire a stake in bonds and stocks, investment companies have had a great influence on investor habits and the securities markets.

A growing number of developing countries are restructuring their economies to increase the operational and allocational efficiency of their capital markets. Joining this group, Turkey, as part of its far-reaching structural reforms toward liberalization and stabilization, started rapid changes in the role and workings of its capital markets and financial system. The emergence of different forms of intermediation and new financial instruments and institutions demands a well-orchestrated and carefully monitored mechanism to ensure the optimal contribution of each upsurging component to the smooth functioning of the overall system.

In this chapter we will present a critical evaluation of the Turkish experience with a developing economy undergoing some fundamental structural changes in its financial sector, emphasizing the role of newly established financial institutions, specifically the mutual funds. Our purpose in analyzing the Turkish case is twofold. First, we believe that the issues raised should provide a useful input for future efforts in the same direction by other developing economies. Second, since Turkey is still undergoing its structural adjustment program, both market participants and the regulators could benefit from our critical evaluations and warnings. We believe that mutual funds, as one of the newcomers to the system, will play a pioneering role and contribute in many ways to the development of efficient and healthy capital

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