This paper examines the factors influencing financial development, focusing on capital controls, legal and institutional development, and their interactions. Using panel data from 108 countries over 20 years (1980-2000), the study explores the relationship between financial openness, legal/institutional development, and equity market development. The findings suggest that financial openness contributes to equity market development only if a threshold level of legal and institutional development is achieved, which is more common in emerging market countries. Higher levels of bureaucratic quality, law and order, and lower levels of corruption enhance the effect of financial openness on equity market development. The study also finds that the liberalization of goods markets is a prerequisite for capital account liberalization, and that the development of the banking sector is a prerequisite for equity market development. The results indicate that the development of banking and equity markets have synergistic effects. The study also addresses the issue of reverse causality, finding that financial development does not necessarily lead to financial openness. The findings highlight the importance of legal and institutional development in facilitating financial development and the need for a sequence of liberalization in goods and capital markets. The study concludes that financial openness can lead to equity market development, but only if the legal and institutional environment is sufficiently developed.This paper examines the factors influencing financial development, focusing on capital controls, legal and institutional development, and their interactions. Using panel data from 108 countries over 20 years (1980-2000), the study explores the relationship between financial openness, legal/institutional development, and equity market development. The findings suggest that financial openness contributes to equity market development only if a threshold level of legal and institutional development is achieved, which is more common in emerging market countries. Higher levels of bureaucratic quality, law and order, and lower levels of corruption enhance the effect of financial openness on equity market development. The study also finds that the liberalization of goods markets is a prerequisite for capital account liberalization, and that the development of the banking sector is a prerequisite for equity market development. The results indicate that the development of banking and equity markets have synergistic effects. The study also addresses the issue of reverse causality, finding that financial development does not necessarily lead to financial openness. The findings highlight the importance of legal and institutional development in facilitating financial development and the need for a sequence of liberalization in goods and capital markets. The study concludes that financial openness can lead to equity market development, but only if the legal and institutional environment is sufficiently developed.