Institutional Quality and Stock Market Development in Nigeria.
ABSTRACT
This study was motivated by the growing concern on the impact of Institutional Quality on economic outcomes. The study focused specifically on the Nigerian Stock Market due to its critical role in the economy as a vehicle for efficient resource allocation. The Autoregressive Distributed Lag (ARDL) bounds testing procedure is employed using data from 1985 to 2012.
The study used the ARDL model to ascertain the long-run impact of institutional quality on stock market development in Nigeria. The results from Empirical analysis of level of corruption, democratic accountability and bureaucratic quality exert significant impacts on stock market development as measured by market capitalisation ratio.
Also, Banking sector development and stock market liquidity contribute significantly to stock market development. Moreover, a unidirectional causality runs from institutional quality to stock market development. The study therefore, recommends that the fight against corruption should be intensified while the market administrative and regulatory qualities should be enhanced for a sustainable stock market development in Nigeria.
TABLE OF CONTENTS
Cover Page…………………………………………………………………………………………………………… i
Title page…………………………………………………………………………….… ii
Certification Page …………………………………………………………………….… iii
Approval Page …………………………….……………………………………………. iv
Dedication ……………………………………………………………………………. v
Acknowledgements ……………………………………………………………………. vi
Abstract………………………………………………………………………………… vii
Table of Contents ……………………………………………………………………… viii
List of Tables ……………………………………………………………………………………………………. x
List of figures……………………………………………………………………………………………………. x
Appendices………………………………………………………………………………………………………… xi
Chapter One:
1.1 Background to the Study………………………………………………………………………………..1
1.2 Statement of the Problem……………………………………………………………………………….4
1.3 Research Questions…………………………………………………………………7
1.4 Objective of the Study…………………………………………………………… 7
1.5 Research Hypothesis……………………………………………………………………………………. 7
1.6 Significance of the Study……………………………………………………………………………….8
1.7 Scope of the Study………………………………………………………………………………………. 8
Chapter Two:
2.1 Conceptual Framework………………………………………………………………………………… 9
2.2 Measuring Institutional Quality…………………………………………………………………….. 11
2.3 Theoretical Literature…………………………………………………………………………………… 12
2.4 Empirical Literature On Other Stock Markets…………………………………………………..16
2.5 Empirical Literature on Nigerian Stock Market………………………………………………. 21
2.6 Limitation of Previous Studies……………………………………………………………………… 22
Chapter Three:
3.1 Theoretical Framework………………………………………………………………………………….23
3.2 Model Specification……………………………………………………………………………………. 25
3.3 Justification of Model and Choice of Variables………………………………………………. 28
3.4 Battery Test………………………………………………………………………………………………….31
3.5 Sources of Data…………………………………………………………………………………………….31
Chapter Four:
4.1 Unit Root Tests……………………………………………………………………………………………. 33
4.2 Bounds Test For Cointegration……………………………………………………………………… 34
4.3 Impact Analysis…………………………………………………………………………………………… 37
4.4 Diagnostic Test Discussions………………………………………………………………………….. 40
4.5 Analysis of Causality Test Based on Error-Correction Model………………………….. 42
Chapter Five
5.1 Summary …………………………………………………………………………………………………….44
5.2 Recommendations……………………………………………………………………………………….. 45
5.3 Conclusion………………………………………………………………………………………………….. 46
References………………………………………………………………………………………………………………47
INTRODUCTION
The role of institutional quality in sustainable development has received tremendous attention in recent time and it has been a central issue in development policies of many nations to orchestrate an insurmountable institution because of its critical position in the development of financial system and stock market in particular. Institution plays a pivotal role in promoting the enactment of rules and regulations, for proper surveillance of political, social and economic activities globally.
Furthermore, viable institutions support macroeconomic stability and promote social cohesion, thus accelerating market efficiency and business development. It has been inferred that countries with efficient working institutions advances strong legal framework for the promotion of efficient mobilization and allocation of funds, thereby creating less risky business environment. Consequently, the absence of adequate regulatory framework and supervision could erode the investors’ confidence which will undermine the performance of the stock market (Law and Azman-Saini, 2008).
The deepening and broadening of the stock market in Nigeria present an important concern to the policy makers (Manasseh et.al, 2014). This has brought to bear many institutional reforms such as the establishment of the investment and securities tribunal (IST) for investors protection, central securities clearing system (CSCS) for transparency, and prologue of other new practices in the market like; the introduction of automated trading system (ATS), Desk for phone-inservice, trade alert introduced by CSCS, a day transaction clearance (T+1) as against T + 14, introduction of the capital trade point by investment securities Act (ISA), introduction of market makers, and the establishment of Real Estate Investment Schemes (Manasseh et. al, 2012).
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StudentsandScholarship Team.