Fiscal Transparency as a Catalyst for Capital Market Development: An Empirical Assessment of IPSAS Adoption in Angola

Abstract

This paper explores fiscal sustainability and capital-market development in Angola and how the adoption of International Public Sector Accounting Standards (IPSAS) affects the institutional and transparency aspects. The economies of Africa remain facing major problems due to insufficient financial resources, lack of investment friendly environment and weak capital markets that have restricted the scope for future growth and diversification. It adopted a quantitative research model and secondary data of a longitudinal nature that was obtained from the BODIVA, Angola's Ministry of Finance, the IMF, the World Bank and the African Development Bank. Market liquidity, trading volume, market capitalization, equity and bond issuance, number of publicly listed companies, legal and regulatory environment, disclosure quality, institutional and retail investor participation were the various aspects of the market analyzed. The statistical techniques used were descriptive statistics, correlation, independent-samples t-test, ANOVA, chi-square analysis, multiple regression analysis, and principal component analysis. The key results suggest that the most statistically significant variables that predict market capitalization are regulatory quality and the number of publicly listed companies in the estimated model. While there was some evidence of improving liquidity, it was not found that greater liquidity led to greater retail-investor participation. Government debt's dominant position in Angola's capital market could limit the growth of private investment instruments, and also narrow the investment opportunities of private sector investors. The results also point to the importance of enhancing institutional frameworks, regulatory oversight, and transparency of fiscal reporting for fostering market confidence and capital-market development. It should be noted, however, that the study does not assert a direct cause and effect relationship between IPSAS and market capitalization or investor confidence on the grounds that the adoption of IPSAS is not one of the numerical predictors in the regression model. Overall, accounting and fiscal-reporting reforms also have the potential to support a more diversified economy in the long run through the establishment of equity markets, development of liquidity and growth of investor participation.