THE ZIMBABWE STOCK EXCHANGE

J.T. MUZAMANI THE ZIMBABWE STOCK EXCHANGE The current literature on the necessity and role of stock exchanges in developing coun tries is not very conclusive. This article looks at the necessity of stock exchanges in developing countries by using data on a stock exchange that had not been used by other authors, the Zimbabwe Stock Exchange. We measure role and necessity of the Zimbabwe Stock Exchange by looking how it has performed as a market where firms can raise new funds for their operations. Previ ous research in this area had shown limited use of the developing country stock ex changes as a source of long term capital for firms in the respective studies. We found that on the Zimbabwe Stock Exchange, between the years 1980 to 1992 there was varying use of the stock exchange as a source of capital. We find significant use of the stock exchange to raise capital during the early part of the period and the last part of the period under study. We also found that the extent of use of the stock exchange as an avenue for raising funds was largely determined by the performance of the stock exchange. The higher the performance, as measured by the stock market index, the greater the amount of funds raised by firms on the stock exchange. Given that most of the downward movements on the stock exchange have been caused by government policy we conclude that, within the Zimbabwean market, whether or not the stock exchange fulfils its role as provider of capital largely depends on government policies.