ions for improving the performance of GSE.
The fact that at present there is no sound and liquid capital market in Georgia can be attributed to two fundamental problems: (I) A low potential of the capital market in Georgia ; and (II) A high unrealized potential of Georgian capital market . The government of Georgia (GoG) should undertake both, long-term and short-to-medium term measures in order to improve the performance of Georgian Stock Exchange (GSE). (I) It is suggested that the potential of the capital market in Georgia could be increased by means of:
Long-term goals:
Increasing the rate of country's economic growth;
Reducing the size of the shadow economy;
Attracting higher Foreign Direct Investments (FDI).
short-to-medium term goals:
Conducting the 2 nd round of the privatization through GSE by involving investment funds into the privatization process;
Including the majority of leading Georgian companies into the listing of the securities traded at GSE.
(II) A high unrealized potential of Georgian capital market can be explained by low confidence (Trust) amongst the investors towards the stock market, which in turn is the result of the problems existing in terms of protecting the shareholders ' rights. In order to solve the latter problem, there is a need: (i) to improve the corporate governance practice , and (ii) to ensure the fairness of the market . These mainly are the goals that can be achieved in short-to-medium term.
The measures needed to improve the corporate governance practice in Georgia include:
To simplify the tax system;
To adopt the International Standards on Auditing (ISA) into law;
To enforce the International Accounting Standards (IAS).
These measures are designed to remove the incentives to pay bribes for the purposes of hiding profits and avoiding paying taxes , which would result in lower levels of corruption in tax administrations and increased transparency of corporate disclosure.
Another measure to improve the corporate governance practice in Georgia is:
To conduct an educational campaign amongst shareholders, company directors and the members of supervisory boards.
The objective of the educational campaign is to lessen the entrenched culture of abusive self-dealing and to give to shareholders sufficient knowledge about their rights. The entrenched culture of abusive self-dealing can also be alleviated by means of putting in place effective regulations and institutions for controlling the self-dealing. Al...
