Capital Market 25+ Research Program

In 2016 WiseEuropa set up The Capital Market 25+ Research Program, which aims at examining and improving the state of the capital market in Poland. The recommendations regarding its further development became especially pertinent in the context of 25 years of the Poland’s economic transition. The Capital Market 25+ Research Program is co-chaired by WiseEuropa Chief Economist Maciej Bitner and WiseEuropa President Maciej Bukowski.

Goals of the program:

Acknowledging the importance of capital markets in the upper stages of economic development while observing both – the serious challenges and the opportunities ahead of Polish capital market, WiseEuropa decided to establish a new research program dedicated to four major goals:

1. Searching for and critically analyzing theoretical and empirical evidence on the relationship between capital markets development and economic growth in Poland and in the world.
2. Identifying key factors responsible for the development of local capital markets.
3. Preparing a list of barriers preventing the development of capital markets and analyzing their presence in Poland.
4. Looking for feasible local solutions for each barrier for the capital market development in Poland.

The order of goals presented above refers to the general approach that characterizes WiseEuropa’s involvement in public policy advising. First always comes a broad diagnosis, but the final result of our investigation is a carefully designed and well-discussed local solution.

Origins of the research program

The research idea behind the Program is rooted in an earlier interests of its initiators. Maciej Bitner and Maciej Bukowski actively took part in public debates on the pension reforms of 2011 and 2013. The negative impact of the changes on the Polish capital market was clear for most of economists, but only those discussions have shown how fragile the status of the market has really been during the transition period after 1989. From the beginning the perception of the capital market in the Polish society has not been uniformly positive and political elites supported the development of the capital market only as long as it helped to promote their short term goals, such as an extra income for the treasury in a form of the revenue generated by privatizations via stock market. In 2013 the role of capital market in facilitating investments and innovation was openly questioned by many politicians and some economists, who took part in the debate. Furthermore, the pro-market side’ responses were not always coherent and didn’t reach the public opinion. Home country-based and accessible analysis showing that a developed capital market plays an important part in a prosperous society was clearly needed to address the above-described research gap.

The second impulse that ultimately led to the creation of the program was a result of the research on the Threat of the Middle Income Trap for Poland. The analysis, conducted in 2015 on behalf of (then) the Ministry of Labor (and therefore published in a volume Employment in Poland 2014), has shown that, among other barriers for the development of the Polish economy in the forthcoming decades, the lack of fully developed capital market could be a serious challenge. As the productivity of the Polish economy converges to the technological frontier, Polish companies need to innovate more for the economy to stay on its current high growth path. Because innovation is inherently risky and requires substantial capital investment on the part of both established enterprises and newcomers, the access to risky capital should be provided via a dedicated market.

Since the establishment of the Warsaw Stock Exchange (WSE) in 1991 the obvious candidate for taking up the role of such a hub for domestic risky capital was WSE and its ecosystem consisting of WSE subsidiaries, market-makers, investment funds, brokerage houses and other institutions. However, after two successful decades of development fueled by a institutional set-up that was undergoing dynamic restructuration, the privatization of significant part of the state-owned entities, pension system reforms in 1999 and the accession to the European Union, the Polish capital market has lost its growth momentum. Since 2011 the most important indicators that show the condition of the market have deteriorated (see Figure 1 and Figure 2) and as of yet there are no clear prospects of their improvement. As the demand for innovative risky capital is expected to increase due to the Poland’s struggle to change its largely imitative growth model, the WSE is paradoxically less likely to come forward to meet this funding demand.

Methodological approach

Our research method throughout the program combines desk and field research. The former provides up to date general understanding, the latter offers unique access to the knowledge on local conditions. Desk research includes scientific and non-academic professional literature review as well as an inhouse data analysis and modeling. Field research takes form of an in-depth interviews with experts from the government, academia, regulatory bodies, and different private sector actors. Besides one-to-one interviews, a feature that distinguishes our research approach is the experts focus group organized by WiseEuropa that enable us to find out the reasons behind expert’s disagreement, as well as to collaboratively work on identification of the potential solutions. Within the Program framework we have organized the Capital Market Expert Forum that allowed us to engage a broad range of policy-makers, stakeholders and academics, who shared their insights regarding the various aspects of the capital market functioning and offered the necessary expertise needed for creation of robust policy recommendations.

The anonymous interviews and Forum meetings, with its Chatham House Rule, brought a unique perspective that has not been previously incorporated into any official literature or public statements. For instance, we would not be able to otherwise find out why it is so rare in Poland to sue a board member of a public company for acting against its interests. Similarly, We would not hear if insider trading in Poland is marginal issue or a serious problem or whether employees in supervisory bodies have previous experience in the private sector.

“The gust and the calm. How the stock market drives the Polish economy?” – first discussion paper

The first research paper that came out a few months after the program started was intended mainly as a survey of real and potential benefits that a public capital market brings or could bring to the Polish economy. Besides growth and finance literature review and macroeconomic simulations it contained case studies of Polish public companies that heavily benefited from the fact of being listed on the stock market. From the body of knowledge that is already recognized by most professionals in Poland two issues stand out. First, we stress the meaning of locality in capital markets. Even if the regulatory framework is very homogenous like in the US, physical distance heavily influences the behavior of investors, companies and research analysts – the more distant the company the less well covered it is and the smaller the chances of it becoming part of investor’s portfolio. The so called “home bias at home” hypothesis has important implications for the necessity of development of local capital markets. Second our research confirmed the Polish regional exceptionalism in the field of capital market development. As Figure 3 shows non-bank external financing is responsible for much greater share of funding than in any other country in the region. Symptoms of the crisis then should not discourage action because Poland achieved more in the area of capital market development than any other new EU member, thus the potential is still there and current “calm” can once again turn into a “gust” if appropriate steps are taken.

“Funded pension scheme – the new opening” – second discussion paper

The second discussion paper came out as a response to the plans by the current Polish government to overhaul the funded part of the pension system. Because pension finance plays a big role in the development of the capital market, a detailed assessment of the government’ proposal has been provided together with WiseEuropa’s own suggestion on how to improve the pension system for even greater benefits for the Polish capital market, future pensioners and the economy. At the core of our proposal there is an idea that the funded pillar should not be a part of the public sector in any sense, but at the same time the government should not leave society without clear suggestions regarding their retirement safety. Our solution then combines the respect for individual freedom – there is no penalty for non-participation – with broadly aimed action of public authorities to inform the people why and – most importantly – how they should save for their retirement.

“Picking up momentum. Citizens’ strategy for the development of the Polish capital market” report

WiseEuropa two discussion papers and subsequent team’s research together with a series of meetings that were held within the Forum’s framework as well as around forty interviews with key market participants resulted in the publication of a report “Picking up momentum. Citizens’ strategy for the development of the Polish capital market” – first strategic document since 2004 that outlines the future prospects of the capital market in Poland.

We define a developed capital market as the one that combines high-quality investment intermediation services with a broad operational scale. Such market is characterized, among other things, by high liquidity, adequate investment returns and strong presence of investors of various kinds, including pension and investment funds, insurance companies and households. All of these features – reflected in a high value of WiseEuropa’s Capital Market Index – are characteristic of world capital market leaders: United Kingdom, United States and Canada (Figure 4). It is argued that the international experience points at three main factors that support capital market development: (i) Market trust originating from a generally favorable regulative and institutional environment (ii) Effective and efficient minority shareholder protection (iii) Large and predictable capital inflow. Each of these factors is covered in a specific chapter that provides an analysis of the current situation in Poland.

The report ends with a list of twelve recommendations directed at various barriers, which were found throughout the analysis. The first and most important recommendation is to prepare of an official strategy for the development of the capital market in Poland. In our opinion such strategy should be created in close cooperation with all stakeholders and its implementation should be orchestrated by one particular governmental institution taking the responsibility for its ultimate success or failure.

Research dissemination

During the conference that was held on the 28th of November 2016 in the Quotation Room of the Warsaw Stock Exchange a report “Picking up momentum” was presented. The Strategy that has been afterwards presented in closed seminars and discussed with the representatives of the Polish Government and the European Commission in order to shape the outlook for the Polish Capital Market in the context of the Capital Market Union. WiseEuropa has also built a substantial institutional stakeholders’ network supporting the Program that also help to disseminate its outcomes. The Warsaw Stock Exchange and the Central Securities Depository of Poland (KDPW) both provided input and support throughout the project. The findings and recommendations of the report have been presented and discussed with the numerous private organizations including the main supporter of the program: The Friendly State Foundation. Among other contributors were organizations such as: ABRIS Capital Partners, Baker & McKenzie Krzyzowski i Wspólnicy, The Polish Association of Listed Companies (SEG), Fundacja Rozwoju Rynku Kapitałowego, the Polish Chamber of Pension Funds (IGTE), Grupa Kęty S.A., Sanok Rubber Company S.A., CI Games S.A., Spinoza Investment Sp. z. o.o.

Key publications of the Program:

Bitner M., Bukowski M., Miśtak J. (2015), “Between imitation and innovation” [in:][/in:] Bukowski, M. (ed.), “Employment in Poland 2014”, Warsaw, Poland: WISE 2015,

Bitner M., Felcis, W., Jackl, F., Siedlecka, U., and Śniegocki, A., “Diagnosis of the development potential of the RES market in Poland with an indication of the technologies for which a support from public funds is desirable in the context of ensuring sustainable energy development”, report commissioned by National Fund for Environmental Protection and Water Management, Warsaw, Poland: WISE Institute 2015,

Bitner M. , Bukowski M. , Pastor K. , “Picking up momentum. Citizens’ strategy for the development of the Polish capital market”, WiseEuropa 2016,

Bitner M., Bukowski M., Siedlecka U. , “The gust and the calm. How the stock market drives the Polish economy?”, WiseEuropa 2016.