Although the bond markets have been growing rapidly compared to the economy, they are still not particularly large when relative to the size of the banking system. The recent research “What is driving the corporate bond market development in Asia” by Oskar Kowalewski and Pawe? Pisany investigates the positive relationship between the development of the corporate bond market and the banking system in 10 Asian countries from 1995 to 2014. Based on the existing empirical research, the researchers have identified several factors that may determine the development of the bond markets in the Asian countries: The economy, financial system, banking sector and institutional framework. The most significant determinant of the development of bond market is the degree of economic development. Besides, banking sector development and bond market development seem to be complementary, particularly so for the private and non-financial segment. In fact, the development of bond markets is influenced by the banking system, for instance, the bond markets are at risk by the unstable capital flow and a number of debts in foreign currency. The strong dependence of monetary on the commercial banks is also one of the most important vulnerabilities. Consistent with crowding-out, larger government markets appear to reduce the share of corporate bonds in the total stock. The existence of fixed setup costs does not seem to be particularly important.
The most important point made in the paper is that present an updated analysis of the development of the corporate bond market. In the study, the researcher uses newer data and a large number of factors that may determine the development of the corporate bond market. The author also find differences in the factors determining the volume of issuance of bonds by non-financial and financial companies.
In conclusion, the paper by itself delivers one of the greatest intellectual challenges to the economic sciences, that is countries with better economic performance and stronger legal institutions have more developed corporate bond markets in terms of size and total issuance.. On the other words, the increased bank credit growth may lead to an increase in the volume of bond issue by financial institutions, which results in larger corporate bond markets. Last but not least, banks also play an important role in developing bond market as they are deriving more of their profits from such activities and less from lending. For this reason, it is important to have healthy banks to have a sound bond market. And a bond market may improve the health of banks, by improving market discipline. In my personal view, the topic definitely merits further research.