This chapter sets forth an explanation for international convergence in state behavior in creating and promoting emerging stock markets. Focusing on the commanding heights of privatized industry, it uses the metaphor of a two-level game from international relations theory to argue that when political leaders privatize large enterprise, they must negotiate with individuals outside the state to seek outcomes that are acceptable to structural international necessity, and they must negotiate with domestic constituencies to seek outcomes that are politically acceptable at home. To do so, policymakers create the specific financial instruments, with specific ownership and control characteristics. Since the new offerings joined whatever shares may or may not have already been listed on a given exchange, the resulting financial institutional structures fail to converge on one “model” of corporate governance or another, as Western financial institutions have converged over time. This theoretical premise would thus predict a large number of new exchanges appearing, at least in name, yet having vastly different volumes and types of listings, relative to the size of the local economy.
Keywords: emerging stock markets, two-level game, financial institutional structure, corporate governance, convergence, international relations theory,