This study investigates the nexus between institutional quality and stock market development. The Autoregressive Distributed Lag Model (ARDL (1,1)) and ARDL bounds testing procedure (Pesaran et al., 2001) was adopted for the estimation. We used annual time series data that covers the periods 1985 to 2013. Institutional quality is measured with corruption control, democratic accountability and bureaucratic quality, while stock market development is measured with market capitalization ratio. The institutional quality captures the degree of transparency and the level of investors’ conﬁdence while market capitalization measures overall performance. In addition, we also accounted for the inﬂuence of the banking sector (proxy: ratio of credit to the private sector). We control for the inﬂuence of variables such as stock market liquidity and per capita income. The results of the bounds test suggest that institutional quality and market development move together in the long run. Further investigation also shows that corruption control and democratic accountability are key institutional measures that impact signiﬁcantly on stock market development, suggesting that institutional quality promotes the degree of transparency and investors’ conﬁdence. Other variables such as stock market liquidity, bureaucratic quality and per capita income were also found to be important determinants of stock market development in Nigeria. Hence, given the above ﬁndings, the relevant authorities should increase their efforts to control the level of corruption through the enhancement of the regulatory framework that could ensure accountability and efﬁcient monitoring of the market actors for the sustainability of investors’ conﬁdence and the promotion of stock market development in Nigeria.
The benefits of industrialization in employment generation, poverty reduction, improved living standard, improved economic growth and development, balance of payment stability, self-reliance, stimulation of other sectors of the economy, and development of skilled manpower have been well established in the literature. However, access to finance for industrial development has remained a key challenge in Nigeria. In view of this, this paper describes what the structure and operations of the Development Bank of Nigeria (DBN) should be so that the Bank will not only deliver on the core mandate of empowering micro, small and medium scale enterprises (MSMEs) but also support the nation’s quest for industrialization by adequately funding national priority projects in the areas of infrastructure, basic industries, energy, transportation, and the likes. The paper argues that limiting the mandate of the DBN only to facilitating credits for MSMEs in the informal sector will not go far in advancing Nigeria’s quest for industrialization.
Industrializing Nigeria requires steady and affordable energy supply and distribution. Hence, this paper examined Nigeria’s petrol market for evidence of consumers paying above the government approved prices and for evidence of asymmetric response of retail petrol prices to changes in oil price. National Bureau of Statistics’ Petrol Price Watch data was used together with descriptive analysis and an ARDL-ECM model. Overall, we find that even when the product is subsidized, consumers in most states pay above the government approved prices. In addition, we find that both in the short- run and long-run, retail petrol prices in Nigeria respond asymmetrically to changes in oil price. These findings are contrary to Nigeria’s status as an oil-rich country, thereby capturing the stark reality of poor utilization of the country’s oil resources to improve its industrial competitiveness.
The study examined the causal relationship between stock market development, financial sector reform and economic growth in Nigeria, using Vector autoregressive and error correction model for the analysis. We observed bidirectional causality between stock market development and economic growth, along with financial sector reform and economic growth. This implies that stock market development and economic growth and; financial sector development and economic growth promote each other. More so, the findings reveal a unidirectional causality running from financial sector reform to stock market development. Hence, there is an evidence of positive long-run relationship between the variables of cointegrating equations. Furthermore, more inquiries on the relationship between business environment, legal framework and stock market development, show a positive long run relationship between the variables of the cointegrating vectors, suggesting that good business environment and quality legal framework could be a prerequisite for stock market development through confidence building and investors protection.
Using modified consumer spending model and data that span the period of 1981–2011, the study examines the effects of interest and inflation rates (proxy - consumer price index) on consumer spending. The study extended its investigation into the causal relationship between consumer spending (proxy; private consumption expenditure [PCE]), interest and inflation rates using granger causality Wald test, so as to ascertain if consumer spending can be use to predict future interest and inflation rates in the economy. The findings suggest that all explanatory variables account for approximately 93.38% variation in consumer spending, indicating interest and inflation rates and other control variables such as per capita income, indirect tax and savings as important determinants of PCE in Nigeria. The results on the granger causality indicated that future interest and inflation rates cannot be predicted using PCE. Therefore, based on these findings, we recommend expansionary fiscal and monetary policies to influence the level of aggregate demand in the economy.
This study investigates the nexus between institutional quality and stock market development. The Autoregressive Distributed Lag Model (ARDL (1,1)) and ARDL bounds testing procedure (Pesaran et al., 2001) was adopted for the estimation. We used annual time series data that covers the periods 1985 to 2013. Institutional quality is measured with corruption control, democratic accountability and bureaucratic quality, while stock market development is measured with market capitalization ratio. The institutional quality captures the degree of transparency and the level of investors' confidence while market capitalization measures overall performance. In addition, we also accounted for the influence of the banking sector (proxy: ratio of credit to the private sector). We control for the influence of variables such as stock market liquidity and per capita income. The results of the bounds test suggest that institutional quality and market development move together in the long run. Further investigation also shows that corruption control and democratic accountability are key institutional measures that impact significantly on stock market development, suggesting that institutional quality promotes the degree of transparency and investors' confidence. Other variables such as stock market liquidity, bureaucratic quality and per capita income were also found to be important determinants of stock market development in Nigeria. Hence, given the above findings, the relevant authorities should increase their efforts to control the level of corruption through the enhancement of the regulatory framework that could ensure accountability and efficient monitoring of the market actors for the sustainability of investors' confidence and the promotion of stock market development in Nigeria.
In the past, studies on the linkage between share prices movement and inflation has been subjected to extensive research by academics, researchers, practitioners and policy makers since the 1990s. Most studies in the industrialized economies showed the existence of negative relationship between share price movement and inflation. Consequently, this paper utilized generalized autoregressive conditional heteroschedasticity (GARCH) model and investigated the influence of inflation on share price movement in Nigerian stock market, using quarterly data for the period 1981 to 2012. The findings of this paper suggest that the GARCH terms of the share price movement in Nigeria depicted a variance of autoregressive conditional heteroscedastic behaviour. Furthermore, share price movement and inflation exhibited a collective volatility of about 0.0015% during the study period. Share price movement exhibit a volatile shock of about 79% in behaviour while a 1% increase in inflation leads to about 0.15% decrease in share price movement in Nigeria. In addition, a 1% increase in market capitalization leads to about 66.8% increase in share price movement in Nigeria. Therefore, stabilizing inflation will deepen the Nigerian stock market the more thereby leading to a trickling down effect on the stock market capitalization. Hence, policies geared towards the reduction and stabilization of inflation to at least, single digit is recommended to the Nigerian monetary authorities.
This study tests the consistency of the Nigerian Stock Market with the efficient market hypothesis (EMH) in the semi-strong form using bonus issues as the information generating event. Using daily data, a total of 121 bonus issues were observed and examined for the period 2002-2006. The stocks which were tested were classified according to the size of their bonus issues and also according to the price of the stock to know the impact of information released on the price of different categories of stock. Using the event study methodology, the market and the market adjusted models as well as the vector auto regression models, the study discovered that information release impacts significantly only in the year 2002. Also, it reveals that small bonus issues responded speedily to bonus issues more than medium and large bonus issues. In addition, the test between penny stocks and blue chips shows that only penny stocks were significantly affected.
This study examines volatility and commodity price dynamics in Nigeria. This was estimated with the generalized autoregressive conditional heteroschedasticity (GARCH) and exponential GARCH, while granger causality test was used to examine the causality direction between domestic commodity prices and spot price of commodity derivatives. The result shows that 30% of volatility in the spot international commodity market can be explained by volatility in domestic and international export commodity prices, while international oil spot prices explains 7% volatility in prices of goods consumed locally and export commodity price index explains 16% of spot price of international commodity between 2000 and 2013 in Nigeria. Inflation and exchange rate is shown to be significantly related to spot price volatility which accounts for its volatility also. Hence, as such, the clamor for a more stable and robust revenue generating sector cannot be over emphasized - the so much talked about diversification.
The paper examine the impact of institutional reforms on financial sector development in Nigeria using data that span the periods of 1996 to 2011. Our findings indicates that measures of institutional reform such as regulatory quality ( Rqty ), government effectiveness ( Gef ); and political stability and absence of voice ( Psav ) impact strongly on financial sector development ( Dcps ) in Nigeria, suggesting the need for institutional reforms that can promote viable regulatory system for the enhancement of contract enforcement; property right protection, corruption control; and to avoid any form of politically motivated violence, unconstitutional overthrownment and terrorism in Nigeria. The results of the causality test also show that financial sector development ( Dcps ) granger causes economic growth ( Rgdp ) in Nigeria. However, it is evident that future improvements in institutional quality in Nigeria, through initiation of all-encompassing reforms in the institutions, may promote financial sector development which may in turn promote economic growth.
The growth of financial system, as the central hub of every economy is paramount for economic development. The reformation of the financial sector is the bedrock for building a formidable, transparent and efficient financial system that could supports the mobilisation of domestic and foreign savings for investment. Conversely, it deepens and broadens financial intermediation, and enforces strict regulations with prudential guide for increase in business activities. Thus, the aim of the study is to investigate the causal relationship between financial sector reforms and economic growth in Nigeria. The study also established the impact of financial sector reforms on economic growth to ascertain if financial sector reforms in Nigeria promote growth. To establish this, financial sector reforms is measured with the ratio of banking sector domestic credit, domestic credit to the private sector and Capital flow proxied with foreign direct investment while economic growth is captured with Per capita GDP. Using generalised linear regression method, with quarterly time series data that spans the periods 1981Q1 to 2010Q4, the following findings on granger causality test were noticed; (a) bidirectional relationship between banking sector domestic credit and per-capita GDP; (b) unidirectional causation running from foreign direct investment to per-capita GDP and; (c) unidirectional causation running from per-capita GDP to domestic credit to the private sector. However, from the findings, banking sector domestic credit and foreign direct investment are the major policy variables that can be adjusted for economic growth. Finally, the estimated regression results show that the explanatory variables accounted for approximately 63.45 percent variation in economic growth. Hence, financial sector reform promotes economic growth in Nigeria.
This study investigates the impact of FDI on economic growth. Quarterly data is used and covers the period 1980Q1-2009Q4. Endogenous growth model is employed for the study with emphases on the impact of FDI inflow into agriculture, manufacturing and telecommunication sectors in Nigeria. However, the study also examines the direction of causality between FDI inflow into these sectors and economic growth. In addition, the study further investigate the influence of business environment - political instability (PI), corruption (CRPINDX), institution/legal framework (LEGFRWK) proxied by FH, 2001, suggested by work of Sala-i-Martin (1997) and Barro and Lee (1994) and macroeconomic indicators such as inflation (INF), real interest rate (RINTR) and real exchange rate (RER) on the inflow of FDI. The empirical evidence shows that FDI into manufacturing and telecommunication sector has positive impact on economic growth in Nigeria while FDI into agricultural sector impacted on economic growth negatively. The findings on granger causality suggest that FDI into agriculture, manufacturing and telecommunication sector have a unidirectional relationship with economic growth in Nigeria. Institution or legal framework has positive and significant influence on the inflow of FDI, hence suggesting the need for strong legal framework for property right protection could serve as an incentive to attract more foreign investors. Political instability and real exchange rate significantly and negatively influences the inflow of FDI vis-a-vis signifying the importance of friendly business environment in the country.
The recapitalization policy of the Central Bank of Nigeria in 2005 increased transactions in the Nigerian stock market and also attracted the interest of many investors. As most capital markets are pro-cyclical, the Nigerian stock market was not different. The investors’ interests were not sustained over a long period of time due to a crash. Whenever there is a burst of the market bubble, it is always attributed to a deviation of the stock prices from the fundamentals of the firms that issue the stocks. Therefore, this study investigates the issue of movement in stock prices and the various changes that occurred in the characteristics of banks’ stocks prices between 2006 and 2010. This study adopts pooled least square regression method using a panel of 10 banks to find out the major determinants of stock prices in the Nigerian stock market with the view to establish if the burst was actually a function of deviation of the price from the fundamentals of the firms. One of the striking findings of this study is that prices of banks’ stocks have been mostly driven by the announcement and issuance of returns on investment at previous time periods – declared dividends. Both at individual bank level and the aggregate banks’ level, declared dividend proved to be the major driver of stock prices. This implies that the burst might not have been as a result of deviation of the prices from the fundamentals of the banks, rather by other forces outside the firm fundamentals.