Stock market development and internationalization: Do economic fundamentals spur both similarly?

We study how local stock market development and internationalization–listing, trading, and capital raising in international exchanges–are related to economic fundamentals. Using panel data, we find that higher-income economies with sounder macro policies, more efficient legal systems, greater openness, and higher growth opportunities have more developed local markets. Importantly, these fundamentals also relate to internationalization, and actually more so, since the better the fundamentals, the higher the ratio of internationalization to local market activity. Furthermore, we find that greater domestic stock market development is associated with subsequent higher internationalization. These findings are not consistent with firms internationalizing to escape poor domestic environments, but rather with better country fundamentals allowing firms to internationalize and with countries with more developed stock markets experiencing more internationalization. With liquidity agglomeration, better fundamentals might further accelerate internationalization, with potential negative effects on domestic markets, as others have already argued.