The Impact of Honesty in Financial Markets on the Economic Parameters

The economic system’s optimum functionality in the society requires efficient, complementary and powerful real and financial sectors. The efficient financial sector’s role is to optimally allocate the economy’s scare resources among different sectors. Each of these two sectors’ inadequate activity will adversely affect the other’s function as well. Symmetric information - honesty - shared between economic agents is a requirement for financial markets to be efficient. The present article’s main objective is to examine the effect of honesty in financial markets on investment and production.
The sample examined in this research consists of a representative of developed countries (G8) and a representative of developing countries for the period 1993-2012 and the method adopted is panel data. The article is presented in two theoretical and empirical parts. The theoretical part’s findings show that as honesty increases, the costs of financial intermediaries, price and the capital rent rate will decrease, and, in a stable environment, investment, capital accumulation and production will increase and so will lead to an increase in the public prosperity and consumption. The empirical model’s findings confirm those of the theoretical part and show that in both groups of countries, as honesty in the financial market increases, production and economic growth will increase as well.