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University of Gloucestershire University Of Gloucestershire The Barriers to Effective Marketization of Corporate Equity in Libya By Zainab Abdussalam Ahmed, BSc., MBA. A thesis submitted to the University of Gloucestershire in accordance with the requirements of the degree of Doctor of Philosophy in the Faculty of Business, Education and Professional Studies PhD June 2011 DECLARATION In accordance with University of Gloucestershire, I do hereby declare that this work has not previously been accepted in substance for any degree and is not being concurrently submitted for any other degree. I further declare that this thesis is the result of my own independent work and investigation, except where otherwise stated (a bibliography is appended). Finally, I hereby give consent for my thesis, if accepted, to be available for photocopying and for inter- library loan, and for the title and abstract to be made available to outside organisations. Zainab Abdussalam Ahmed Gloucestershire University [Type text] Page II DEDICATION I dedicate this work first to Allah then to my dear mother and father who provided me with unbounded support and encouragement. I also dedicate this work to my wonderful brothers; Nader, Wessam, Mahmud, and Yosef for their love and support. [Type text] Page III ACKNOWLEDGEMENT All thanks to Allah, who guided me and illuminated the way, particularly in the difficult stages of this thesis. I would also like to express my sincere gratitude to my great supervisory team, Professor Bob Ryan and Doctor Aisha Elhaji for their advice, support and valuable guidance throughout the whole research process. I am also indebted to my family- my parents, brothers and sisters in laws, and my nephews Abdualrahman and Mohamed for their patient and continued support and inspiration. In addition to this, I would to thank all the people who gave me advice as well as useful comments and contributions, including; Barry Davies; Philippa Ward; Sue Williams; Lynda Chan; Cheltenham International Language Centre and those who took part in this research and were a source of the primary data and information. Finally, this research was made possible by the generosity of the Libyan government which sponsored me for the whole period of study and I am very grateful for their support. [Type text] Page IV ABSTRACT Libya is an emerging market in the Middle East and North Africa (MENA) region. Early efforts to encourage financial market development in the 1990s were re-energised after the lifting of UN sanctions in 2003 following dramatic changes in the Libyan financial market. One of these critical decisions was the establishment of the Libyan stock market in 2006. This thesis attempts to explore the challenges that may face the Libyan stock market by examining the barriers which affect the development of the Libyan stock market. In this endeavour the researcher develops a best practice model to help the Libyan stock market achieve its ambitions. The aim of this thesis is to fill the gap in academic research on MENA financial market by investigating the role of ten selected factors on the development of the Libyan stock market. In this thesis, trust is introduced as a major moderator of the ten selected factors under study. Although, there are many examples in the literature of how to understand and interpret trust and, in particular, behavioural economics, transaction cost economy and more general social process theory leads to different understandings of the concept of trust. In this thesis it is argued that the concept of transaction cost economy allied with social process theory provide useful insights. In order to explore and understand the situation of the Libyan stock market as a human construct; and the factors which may affect Libya and its stock market development, the interpretive accounting research (IAR) appears to be the most suitable paradigm for this research. Thus this study uses qualitative methods and mainly semi-structured interviews. [Type text] Page V Data collection from key stakeholders in the Libyan stock market (officers and brokers) involved qualitative methods (face-to-face semi-structured interviews) were carried out to help to identify four research questions. RQ 1: What are the factors which may affect the Libyan stock market development? RQ 2: What is the relationship between trust and the main factors as it effects the Libyan stock market development? RQ 3: What are the barriers to use of unwritten contracts in the Libyan stock market? RQ 4: How can the Libyan State and market work together to improve the social economy and regulation of transaction cost on the capital resource of the Libyan stock market? In answering the research questions, the findings of this thesis make the following contributions. First , this research found that technology development in addition to all ten selected factors (culture, religion, bureaucratic quality, banking sector, foreign investment, political risk, privatization, stock market liquidity, per capita income and Law & regulations) is considered a barrier to the development of the Libyan stock market. Second , this research found that the Libyan national culture can be described as “uncertainty acceptance” in the financial market area, which is completely different to Hofstede (2001), Twati (2006) and Abubaker (2008), who claim that Libyan culture is described as “uncertainty avoidance”. Third , this research found that financial markets in Islamic countries should be aware of culture and religion as critical factors that enhance trust and development. Fourth , due to the importance of trust in the financial market, specifically in the stock market, this research found that in Islamic countries trust may be determined by four determents: the availability of Islamic investment [Type text] Page VI products, fast the processing speed, low transaction cost and secure property rights. Fifth , this study found that there is a positive relationship between all eleven factors and the enhancement of trust. Sixth , despite the lack of studies about the relationship between bureaucratic quality and financial markets, this research found that there is a direct relationship between the Libyan financial market and bureaucratic quality. Seventh , in the case of Libya, the State has a crucial role in creating a suitable environment for the new transition to the economy which should reflect on a clear strategic plan and working together. Eighth, in tribal cultures, personal relationships play a crucial role on trust in the financial market so the time aspect could be critical in order to build a trusting relationship. Ninth , this research provides a model for the development of the Libyan stock market. The object of this model is to categorize the eleven factors in order of importance on the development of the Libyan stock market. Tenth, this study identifies the need for further training for brokers and considers the need of teaching the operation of stock markets extensively in the education sector in Libya. Eleven, this is the first interpretive study on this topic that aims to emphasis the barriers to effect marketization in the very recent creation of the Libyan stock market where there is insufficient history, breadth and depth in the market to support a more quantitative study. [Type text] Page VII CONTENTS DEDICATION ......................................................................................................................... III ACKNOWLEDGEMENT ....................................................................................................... IV ABSTRACT .............................................................................................................................. V CONTENTS .......................................................................................................................... VIII LIST OF TABLES ................................................................................................................... XI LIST OF FIGURES ............................................................................................................... XII CHAPTER ONE: INTRODUCTION ........................................................................................ 1 1.1 Background ...................................................................................................................... 1 1.2 The Libyan Stock Market ................................................................................................. 3 1.3 General Theory Relating to the Development of Financial Institutions .......................... 4 1.4 Motivation of this Study ................................................................................................... 5 1.5 The Research Problem ..................................................................................................... 7 1.6 The Research Questions ................................................................................................... 8 1.7 Methodology .................................................................................................................. 10 1.8 Structure of the Thesis.................................................................................................... 13 CHAPTER 2: LITERATURE REVIEW ................................................................................. 15 2.1 Introduction .................................................................................................................... 15 2.2 Behavioural Economics, Trust & Financial Market Development
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