Working Paper Series: CF010

Can Corporate Financing Through the Stock Market Create Systemic Risk? Evidence from the BRVM Securities Market

This paper aims to analyse the systemic risk in the regional BRVM (Bourse Régionale des Valeurs Mobilières) stock exchange in West Africa. This stock market, shared by 8 francophone West Africa countries, has grown over the last decade and is now a valuable source of funding of corporates and governments.

The global financial crisis has renewed the interest for systemic risk analysis. Systemic risk is a multiform concept and hard to define, but you know it when you see it. To define the systemic risk, we consider the one suggested by the G10 as “the risk that an event will trigger a loss of economic value or confidence in, and attendant increases in uncertainty about, a substantial portion of the financial system that is serious enough to quite probably have significant adverse effects on the real economy”. This definition focuses on the loss of confidence, increases in uncertainty, the fact that a substantial portion of the financial system is concerned and ultimately the significant adverse effects on the real economy (Eijffinger, 2011).

Systemic risk analysis can be divided into two generations according to the existing literature (e.g., Benoît et al., 2017; Silva et al., 2017; Saidane et al., 2021). The first generation focused on issues related to bank panics and crashes, and shows that bank panics, contagion effects, information asymmetry, liquidity and bank interconnectedness are key factors that can lead to systemic crises (e.g., Bernanke, 1983; Diamond and Dybvig, 1983). The second generation which emerged in the aftermath of the 2007 financial crisis focused on causes, new definitions, and measurement tools for predicting systemic risk (e.g., White et al., 2015; Adrian and Brunnermeier, 2016; Acharya et al., 2017; Brownlees and Engle, 2017).

Read More/Download Report