Corporate finance Assignment Example | Topics and Well Written Essays - 2750 words

Corporate finance - Assignment Example Stock market index is considered as one of the important economic indicators for the government to watch and formulate its economic policies and strategies to appropriately deal with the economic situation in a country. The benefits of capital markets in a country are multifarious. The capital markets play an important role in capital formation of the country which is essential for the governments’ plans with regard to investment in various sectors of the economy for a balanced economic growth. The governments are not in a position to effectively intervene in the economic process of the nations due to ever-increasing proportion of non-plan expenditure in the budgets. Government spending is very important for generating employment when there is slowdown in economy, to prevent recession. Therefore, the diminishing proportion of funds allocated to plan expenditure by the government should be compensated by private investment through stock markets for maintaining the pace of economic growth. Due to inefficiency of the public sector undertakings and their poor contribution to the economic development in spite of heavy investments made in these undertakings in countries like China and India there has been perceptible shift in policy making by the governments. Most of the public sector undertakings have been privatized by selling their shares in the open market by listing these companies in the stock exchanges by these governments. It has also been noticed that these undertakings’ performances have increased significantly after privatization. These companies are now competing with private companies and are able to mobilize funds for their expansion through the stock markets. This has reduced the financial burden of the respective governments considerably. The stock markets play a crucial role in developing the savings habit of the people. The stock markets are responsible to a considerable extent for entrepreneurial development