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
Title page
Abstract
Table of Contents
List of Tables
List of figures
Appendices
Chapter One:
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Research Questions
1.4 Objective of the Study
1.5 Research Hypothesis
1.6 Significance of the Study
1.7 Scope of the Study
Chapter Two:
2.1 Conceptual Framework
2.2 Measuring Institutional Quality
2.3 Theoretical Literature
2.4 Empirical Literature On Other Stock Markets
2.5 Empirical Literature on Nigerian Stock Market
2.6 Limitation of Previous Studies
Chapter Three:
3.1 Theoretical Framework
3.2 Model Specification
3.3 Justification of Model and Choice of Variables
3.4 Battery Test
3.5 Sources of Data
Chapter Four:
4.1 Unit Root Tests
4.2 Bounds Test For Cointegration
4.3 Impact Analysis
4.4 Diagnostic Test Discussions
4.5 Analysis of Causality Test Based on Error-Correction Model
Chapter Five
5.1 Summary
5.2 Recommendations
5.3 Conclusion
References
CHAPTER ONE
INTRODUCTION
1.1 Background to the
Study:
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 presents 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-in- service, 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).
Even
though the market is erratic in its performance over time, the introduction
of these practices and
the newly established
policy
incorporating small and
medium
business enterprises
in
the
activities of
the market have brought some remarkable improvement in the performance of Nigeria stock
market.
According to NSE (2013), the market performance shows that the number of securities listed on the stock exchange have grown greatly. For example, in 1961, the number of securities listed
was
8,
but have grown to
190 on average between 1971
and 2010. It was also noted
that the market capitalization has soared from N6.6 billion in 1985 to about N12 trillion on averages between
1995 and 2010. However, at the end of 2013, the impressive performance of the market climbs to 47.2 percent return compared to 35.5
percent in 2012, and
N13.226 trillion market capitalisation
compared to N8.97 trillion recorded at the end of 2012 respectively. While NSE All Share Index which tracks the performance of the stock exchange blown to above 40,000 points compared to 28,078.81 points at the end of 2012,
the portfolio of investors’ worth
grew by N4.25 trillion.
Even in the presence of the recorded remarkable improvement in recent time, as shown in figure1 below, it is evident that the Nigeria stock market is the least in terms of
market capitalisation compared to other emerging markets like Kuala Lumpur stock market of Malaysia; Singapore stock market and Johannesburg stock
market of South Africa (World Bank, 2012).
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