CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND TO THE STUDY

The Capital market in any country is one of the major pillars of long-term economic growth

and development. The market serves a broad range of clientele, including different levels of

government, corporate bodies and individuals within and outside the country. Capital

formation entails accumulated savings out of the current incomes of either organization or

individual. It is investment in fixed assets which in part is financed with monies raised

through the capital market (Al-Faki, 2006). The Capital market has been one of the major

means through which foreign funds are injected into most economies and the tendency

towards a global economy is more visible there than anywhere else. It is therefore, quite

valid to state that the growth of the capital market has become one of the barometers for

measuring the overall economic growth of a nation (Emenuga, 1998).

The development of the capital market has generated two major sets of economic benefits.

First, it has improved the allocation of capital, because the prices of corporate debt and equity

respond immediately to shifts in demand and supply, changes in the outlook for an industry

(and/or company) are quickly embodied in current asset prices. The signal created by

change in price of a security encourages investors as a result of higher prices or

discourages them due to lower prices; this is because the investors often used the prices of

securities to predict the likely trend of the market as either bullish or bearish. Businesses with

high returns attract additional capital quickly and easily. When there is decline in demand,

prices drop, and this signal makes investors to cut the flow of capital to the industry which

leads to a decline in economic growth. The ability of companies in their early stages of

development to raise funds in the capital markets is also beneficial because it allows these

companies to grow very quickly. This growth in turn results into general increase of output in
 the economy (Abdullahi, 2005).

Although interest in identifying a formal link between financial system and economic growth is

fundamental, the basic intuition behind this relation is relatively easy to surmise. This is

because of the fact that the main goal of the capital market is the channeling of funds from the

surplus sector unit to the deficit sector unit of the economy. It plays a major task in human

capital investments which are essential elements of economic growth and development. From

this point of view, one should expect that as the capital market develops and deepens, then

efficient allocation of the financial resources for the investment is facilitated and thus the

frontier of production possibilities is increased (Adam & Sanni, 2005).

Economic growth in a modern economy hinges on an efficient financial sector that pools

domestic savings and mobilizes foreign capital for productive investments. Financial markets

play an important role in the mobilization of financial resources for long term investment

through financial intermediation. The financial market, which comprises the capital and money

markets as well as other submarkets, plays crucial roles in the functioning of any modern

economy. However, for the purpose of this research work emphasis will be on the capital

market. The capital market is believed to be an important sector of every economy whether it is

developed or developing. This is because of the fact that the capital market performs a vital

role in the growth of the economy by providing the avenue through which foreign investors

make investment in the country which in turn may boost the growth of the economy in terms of

foreign Direct Investment (Daniel, 1999).

The capital market mobilizes long-term debt and equity finance for investments in long-term

assets. Capital markets also help in boosting the financial system as well as improving the

economic growth of a country. The capital market supplements traditional lending activities of

the financial institutions such as banks by providing risk capital (equity) and loan capital (debt).

By means of these instruments, the market is able to mobilize long-term savings and
provide capital to investors to finance long-term investments thereby broadening ownership of

productive assets (Daniel, 2004).

Dealers in the securities segment of the capital market include banking institutions,

stockbrokers, investment and merchant bankers and venture capitalists that intermediate

between the market and the public. Well- functioning financial markets are very crucial for the

promotion of global financial integration. An efficiently functioning domestic financial market

can better position a country’s competitiveness in the markets for global capital (Senbet &

Otchere, 2005).

Accessing global markets for capital, through a well-functioning financial system, lessens a

country’s reliance on foreign aid and other forms of external borrowing. It has been pointed out

by a number of financial analysts that financial globalization allows for the sharing of local

security risks.

Given the benefits associated with having well-functioning financial systems, a number of

African countries have endeavored to put in place various measures aimed at developing the

financial sector. Financial sector reforms have therefore been widely used as policy

measures to encourage the development of domestic financial systems as well as the

dismantling of barriers to international capital flows. African financial markets have been

increasingly integrated with the other world capital markets. The encouraging drive towards

globalizing capital flows in Africa has led to the growing relevance of emerging capital markets

in the continent (Harris, 1997).

The impact of the capital market performance is determined by a number of elements, which

include how financial assets are priced, such as the size of the stock market, market

capitalization, number of listed equities, transactions in buying and selling of securities

(liquidity) which in this case refers to the volume of transactions and new issues of securities.

This study therefore poses to examine the impact of capital market performance on economic
growth in Nigeria.

1.2 Statement of the problem

Nigerian capital market has undergone a series of reforms all with the hope of creating a stable

economic growth and development. The most recent reform was carried out in order to provide

opportunities for greater fund mobilization, improved efficiency in resource allocation and

provision of relevant information for appraisal. It is expected as a result of the reform the

market can provides variety of financial instruments capable of enabling economic

agents to pool, price and exchange risk. In spite of these vital roles that the reform is expected

to play, there is however a great concern on the performance of the Nigerian capital market in

relation to the economic growth and development which when viewed from the nature of

activities taking place in the market appeared superficial. This may probably be attributed to

lack of providing enabling framework that sustained confidence and investors’ protection and

also thorough evaluation of factors that are of significance relevance in determining capital

market performance.

Although from economic perspective distinction exists between economic growth and

development, most of the studies conducted in the area under study fail to take into

consideration the difference and also the interrelationship between the two variables. This

therefore triggers the need to investigate the situation bearing in mind the distinction and also

appropriateness of the methodology under study. To the best of our knowledge, studies

conducted in the area show mixed conflicting results and this could probably be attributed to

failure to adopt appropriate methodology. Another issue of concern is most of the studies that

evaluate capital market performance are either on data of primary market or secondary

market and used to infer on the overall capital market performance but not on the

combination of the two markets’ data in aggregate. This informs the need to evaluate the market

on aggregate data basis in order to ascertain how influential it is on the economic growth of
Nigeria.

1.3 Research Questions

Based on the broad statement of the problem the following research questions were raised:

i. To what extent does market capitalization impact on gross domestic product?

ii. How does total new issues affect gross domestic product in Nigeria?

iii. To what extent does the volume of transaction in the capital market contribute

to the Gross Domestic Product in Nigeria?

iv. To what extent does total listed equity in the capital market contribute to the Gross

Domestic Product in Nigeria?

1.4.1 Objectives of the study

The main objective of the study is to examine the impact of capital market performance on

economic growth in Nigeria. However the specific objectives are to:

v. Determine the impact of market capitalization on the Gross Domestic

Product (GDP).
vi. Assess the effect of total new issues on the gross domestic product.

vii. Identify the contribution of the volume of transaction to the gross domestic product
in Nigeria.

viii. Examine the impact of total listed equities stocks on the gross domestic product

in Nigeria.

1.5 Hypothesis of the study

In line with the objectives of the study the following hypotheses have been

formulated in null form:

H01: Market capitalization has no significant impact on Nigeria’s gross domestic

product.

H02: Total new issues have no significant effect on Nigeria’s gross domestic
 product.

H03: Volume of transaction has not significantly affected Nigeria’s gross

domestic product.

H04: Total listed equities have no significant impact on Nigeria’s gross domestic

product.

1.6 Significance of the study

It is a noted fact that for any meaningful economic transformation of a country to take

place, the capital market must be effectively active. It has also been an acknowledged fact

that the economic strength of any nation is measured according to how actively and

effectively the capital market is performing (Adamu, 2008).

The study will be of immense significance to regulatory authorities such as the CBN, NSE

and SEC in coming up with sound financial policies and reforms that will boost the

performance of the capital market. This would strengthen public companies by ensuring that

corporate governance practices in Nigerian public companies are aligned with international

best practices through improved financial disclosure of information and adoption of

International Financial Report Standards. Finally, future studies may want to share this

experience by extrapolating some of the data as well as the statistical inferences that this

study has come up with.

1.7 Scope of the study

The Nigerian economy is a large component with a lot of diverse and sometimes complex

parts. In this regard the study looks at a particular part of the economy by focusing particularly

on the financial sector. Even then, the study does not cover all the parts of the financial sector,

but focuses only on the capital market and its activities as such its impact on Nigerian

economic growth. This is informed by the importance of the capital market to the economic

development of the country because it provides long term funds needed for investment for the
 CHAPTER TWO

LITERATURE REVIEW

2.1 CONCEPTUAL FRAMEWORK

This chapter reviews relevant literatures; issues reviewed include capital market variables like

market capitalization, new issues, volume of transaction and equity stocks as well as gross

domestic product (GDP). Furthermore, it also reviews previous studies on capital market

performance and economic growth by various scholars, roles of the capital market in Nigeria,

contribution of the capital market to the economic growth of Nigeria and finally provides an

analysis of the Nigerian capital market performance.

2.1.1 Concept of capital market variables

Capital market is an integral part of the financial system that provides an efficient delivery

mechanism for mobilization and allocation, management and distribution of long term funds for

investment project (Alile & Anao, 1990).

Sule and Momoh (2009) notes that the capital market is the medium through which funds are

mobilized and channeled efficiently from savers to users of funds. Apart from judicious

mobilization of idle savings into productive use, the capital market creates an avenue for

foreign investment and the influx of foreign capital for developing projects that will increase

the welfare of citizens

A capital market is a market for securities (debtor equity), where business enterprises

(companies) and government can raise long-term funds (Sullivan & Sheffrin, 2003). It is

defined as a market in which money is provided for periods longer than a year, as the raising

of short-term funds takes place at other market, which in this case is the money market. The

capital market includes the stock market such as equity securities and the bond market which is

about debt. The financial regulators of the capital market such as the Central Bank of Nigeria,

Securities and Exchange Commission (SEC) oversee the capital markets in their designated

7
jurisdiction to ensure that investors are protected against fraud (Afolabi, 1991).

Thus, the capital market is one in which individuals and institutions trade financial securities.

Also, organizations or institutions in the public and private sectors also often sell securities on

the capital market in order to raise funds.

Thus, this type of market is composed of both the primary and secondarymarket (Olowe,
1997). The Capital market has also been defined as the market where medium or long-term finance
can be raised (Akingohungbe, 1996). Ekezie (2002) notes that the capital market is the market for
dealings in terms of

Lending and borrowing in long-term loan able funds. Mbat (2001) describes it as a forum

through which long-term funds are made available by the surplus economic unit to the deficit

economic units. It must, however, be noted that although all the surplus economic units have

access to the capital market, not all the deficit economic units have the same easy access to

it. The restriction on the part of the borrowers is meant to enforce the security of the funds

provided by the lenders. In order to ensure that lenders are not subjected to undue risks,

borrowers in the capital market need to satisfy certain basic requirements such as the capital

base of the organization, financial worthiness and a host of others.

Gugler, Muler and Yurtoglu (2003) argue that the strength of a country’s capital market

determines the degree of a firm’s investment performance regardless of how closely managers’

and owners’ match. The Capital market offers access to a variety of financial instruments that

enable economic agents to pool, price and exchange risks. Through assets with attractive

yields, liquidity and risk characteristics, it encourages savings in financial form. This is very

essential for government and other institutions in need of long-term funds and for suppliers of

long-term funds (Nwankwo, 1991).

Based on its importance in accelerating economic growth and development, the governments of

most nations tend to have keen interest in the performance of its capital market. The concern is

for sustained confidence in the market and for a strong investor protection arrangement.

8
Therefore, the capital market is the market which deals in long-term funds. In other words, it is

a network of financial institutions and infrastructure that interact to mobilize and allocate long-

term funds within the economy. The market affords business firms and the government the

opportunity to sell stocks and bonds and to raise long-term funds from the savings of other

economic agents. The sourcing of long-term finances through the capital market is essential for

self-sustained economic growth which is consistent with rapid economic growth. An active

capital market aids the mobilization of savings for economic growth and development

(Emenuga, 1998).

Market capitalization is the total value of all shares of a publicly-traded company. Market

capitalization is calculated by multiplying the total number of shares by the market price per

share. Market capitalization is one of the basic measures of the worth of a publicly-traded

company; it is a way of determining the actual value of a company. Also the investment

community uses this figure to determine a company’s size or (worth), as opposed to sales or

total assets figures (Ekezie, 2002). Generally speaking, a higher market capitalization indicates

a more valuable company. Consequently, it is the sum of the current market value of all

securities traded on a financial market.

9
 New issues market is the market where companies can raise finances by issuing shares or by

floatation of securities. In other words, it is when a company attempts to raise funds by

issuing additional shares or initial public offer to the general public who wish to invest in the

shares of the company. An initial public offering (IPO) is a first-time offering of shares by a

specific firm to the public (Agarwal, 2001).

Economic growth is a positive change in the level of production of goods and services by a

country. Economic growth is usually brought about by increase in activities of the stock market,

advancement in technology and improvement in the quality and level of the capital market’s

performance. All these are considered to be the principal causes of economic growth. For the

purposes of this study the Nigerian economic growth is represented by the Gross Domestic

Product (GDP). The gross domestic product is the market value of all goods and services

produced in a country at a specific period of time such as one year for example(Okpara,

2006).However, this study perceives the capital market to be that which deals with long-term

securities whose maturity period is over and above two years. Furthermore, it is viewed as an

avenue in which funds are raised and made available to the deficit economic unit.

2.2 THEORETICAL FRAMEWORK

Review of Literature in the concept of Capital Market Variables
Market Capitalization
Market capitalization represents the aggregate value of stock size (Adewoyin, 2004). Market

capitalization is the measurement of the size of businesses and corporations which are equal to

the market share price times the number of shares in this case shares that have been authorized,

issued, and purchased by investors of a publicly traded company (Al-Faki, 2006). Market

capitalization is also calculated by multiplying the shares of the company by the price per

share. The investment community uses the figure to determine a company’s size or worth, as

opposed to sales or total asset figure (Olowe, 1997).

10
In summary, market capitalization refers to the number of shares of a company multiplied by

the market share price. In other words, market capitalization is usually considered as reflecting

the worthiness of a company used by the investing public to determine the credit worthiness of

a firm in terms of investing in such companies.

Market capitalization is the most widely used indicator in assessing the size of a capital

market within an economy. In a bearish market, market capitalization falls and vice versa for a

bullish market. Before 1988, the total market capitalization was less than N10 billion from 1988

to 1994, it hovering between N10 billion to N57 billion. In 2003 it was N1, 3593 trillion,

N2.1125 trillion in 2004 and N5.12 trillion in 2006. Market capitalization recorded the highest

value of N13.2294 trillion in 2007. But this figure fell to N9.562 trillion in 2010 due to the

global financial meltdown (Soludo, 2006).

Theories of Economic Growth

Under this sub-section various theories of economic growth have been reviewed among which

includes;

Solow-Swan Growth Theory

The neoclassical growth theory also known as the Solow-Swan growth theory or exogenous

growth theory is a class of economic model of long-run economic growth. The growth theory

explains long-run economic growth by looking at productivity, capital accumulation, population

growth and technological progress (Solow & Swan, 1956). This theory was developed

independently by Robert Solow and Trevor Swan in 1956 and supersedes the post Keynesian

Harrod – Domar theory. Due to its attractive mathematical characteristics, Solow-Swan proved

to be a convenient starting point for various economic growth theories.

Harrod – Domar growth Model

Harrod-Domar (1946) work suggests that growth depends on the quantity of labour capital and

that more investment leads to capital accumulation, which generates economics growth, in

11
economically less developed countries. Labour is in plentiful supply in these countries but

physical capital is not, thereby slowing the economic growth process. This theory is an early

post Keynesian economic growth. It is used in explaining an economy’s growth rate in terms of

the level of saving and productivity of capital. The theory also suggests that there is no natural

reason for an economy to have a balanced growth. The theory was developed independently by

Roy F. Harrod in 1939 and Evsey Domar in 1946, the theory was the precursor to the

exogenous growth theory.

Arrow Kenneth Growth Theory

Kenneth (1962) opines that endogenous growth theory is about investment in human capital,

size of capital stock, innovation and knowledge. All these are significant contributors to

economic growth. The theory focuses on positive externalities and spillover effect of a

knowledge-based economy which will lead to economic development. Endogenous growth

has an impact on the long-term growth rate of an economy. This theory was developed by

Arrow Kenneth (1962), it further improves the work of other scholars like Harrod-Domar

(1946), Solow – Swan (1956) by looking at investment in technology and knowledge as the

major factors of economic growth.

Paul Romer Growth Theory

Romer (1986) views creation of knowledge as a side product of investment and he takes

knowledge as an input in the production functions of firms. His theory sees new knowledge as

the ultimate determinant of long-run growth which is determined by investment in research

technology. To Romer, ideas are more important than natural resources. Therefore, ideas are

essential for the growth of an economy.

Theoretical Framework

In terms of theory, a lot of literature argues that stock markets provide activities that boost

12
economic growth. Specifically, Greenwood and Smith (1997) show that large stock markets can

lower the cost of mobilizing savings and thereby facilitate investment in the most productive

technologies.

Bencivenga, et al. (1996) and Levine (1991) advance the view that stock market liquidity which

is the ability to trade equity easily is important for growth. Specifically, although many

profitable investments require a long-run commitment of capital, savers do not like to relinquish

control of their savings for long periods. Liquid equity markets ease this tension by providing

assets to savers that they can quickly and inexpensively sell. Simultaneously, firms have

permanent access to capital raised through equity issues. Moreover, Kyle (1984) and

Holmstrom and Tirole (1993) argue that liquid stock markets can increase incentives to get

information about firms and improve corporate governance. Finally, Obstfeld (1994) shows that

international risk sharing through internationally-integrated stock markets improves resource

allocation and can accelerate the rate of economic growth.

However, for the purpose of this study the endogenous growth theory has been adopted. This is

informed by the fact that the Endogenous growth theory links human capital, capital market

growth and innovation to economic growth unlike exogenous growth theory which concentrates

only on productivity and not on economic growth.

Summary
The capital market by nature of its activities is among the most heavily regulated financial

sector in both developed and developing economics. In the course of carrying out this research

some empirical marks already concluded on the capital market and economic growth were

considered. Similarly, in the course of carrying out the research work a lot of literature was

reviewed based on the capital market and economic growth. Also in this regard, various

definitions of the variables have been considered as well. The chapter also highlights some of

the contribution of the capital market; after an analysis of the market and the chapter finally,

13
discusses the theoretical framework of the study.

14
 CHAPTER THREE

RESEARCH METHODOLOGY

Introduction
This chapter describes the research method adopted in conducting the research. It presents

logical information on procedure for the collection of data, techniques of data analysis, variable

measurement and justification of method and technique.

Research Design
Descriptive research design has been adopted for the purposes of this study. According to Best

and Kahn (1989), descriptive research is the type of enquiring that deals with the collection and

analysis of data for the purposes of describing and interpreting existing conditions and also to

make discovery and explanation of past events. Descriptive research is utilized because it

enables exploring relationships between two or more variables. Also, it is appropriate for testing

the hypotheses of the study and help to answer the research questions concerning the capital

market and the economy which are crucial concern of this study.

POPULATION AND SAMPLING DESIGN

The population of the study constitutes all the companies quoted on the Nigerian Stock

Exchange, because the study has to do with the performance of the capital market on the

Nigerian economy. Census sampling technique is adopted, in which case the contribution of all

the companies in aggregate is taken into consideration.

Sources of Data Collection

The data used in this study has been collected from secondary sources. The instrument utilized

for the collection of secondary data is documentation. Documentary data has been collected via

the Nigerian Stock Exchange bulletin (NSE), Security and Exchange Commission (SEC)

bulletin and Central Bank of Nigeria (CBN) Statistical bulletin. The study utilizes the secondary

15
source because it provides a basis for purposeful research work and also gives a direction for

the research work.

Technique of Data Analysis

The multiple regression analysis was used to determine whether the capital market indices

(market capitalization, total new issues, volume of transaction and total listed equities) have

impacted significantly on the economic growth of Nigeria, (proxied) by Gross Domestic

Product during the period of the study.

Model Specification

The model specified for the purpose of testing the hypotheses of the study is presented below

Y= a + bx

GDPt = a0t + a1tMCAPt + a2tTNIt + a3tVLTt+ a4tLEQt + ℮ t

Where:

GDP = Gross Domestic Product a0

= Regression Constant

a1 – a4 = Coefficient of independent variables. MCAP

= Market Capitalization

TNI = Total New Issues

VLT = Volume of Transactions

LE = Listed Equities

℮ = Stochastic Error term (Disturbance term) t =

Time series

Variable Measurement
The research work focused on the measurement of variables contained in the topic of research

16
which has to do with the impact of capital market performance on the economic growth of

Nigeria. The two variables involved in this research study are the dependent and independent

variables. The dependent variable is the economic growth which is proxied by Gross Domestic

Product (GDP) while the independent variable is concerned with the following indices: Market

capitalization, total new issues, volume of transaction and total listed equities.

The following table presents the variables used in the model above and their measurements.

TABLE 3: 1 Variable Measurement

S/No Variable Symbol Measurement of Variables

1 GrossDomestic Product GDP C+G+I+X–M

2 Market Capitalization MCAP Number of shares of the company x

Market share price
3 Total New Issues TNI Existing number of shares / New number
of shares
4 Volume of Transaction VLT Total number of shares traded / Total
number of shares outstanding
5 Listed Equities LEQ Total Debt / Net worth

Source: Various Literature Definitions

The definitions of the variables that are used in the model are based on the regression model

developed in the study. The four Variables MCAP, TNI, VLT and LEQ represent Capital

Market performance, while the variable GDP represents economic growth.

Decision Criterion
The decision to test the hypothesis of the study is as follows:
If the p-value of the t-coefficient is less than 1% (0.01) or 5% (0.05), the null hypothesis is

rejected and otherwise we fail to reject it.

Robustness Test
In order to cleanse the data for the study and improve the validity of inferences from results,

the following tests were conducted.

1. Autocorrelation test – Durbin Watson( D.W)

17
 2. Multicollinearity test Using Variance Inflation Factor and Tolerance Value

Justification of Methods and Techniques

The technique deployed for this study is based on the parametric tool. A multiple regression

tool has been preferred because it assists the researcher in ascertaining the relationship between

the capital market (stock market) and economic growth in which the Gross Domestic Product

(GDP) has been used as indices of economic growth significantly influenced by other

independent variables of the capital market. Overall the technique is appropriate for achieving

the set objectives of the study. One of the merits of the model is because it produces optimal

results in predicting numeric output when properly structured.

Summary
The chapter examines the research methods adopted by the research work coupled with the

population and sample design. Due to the nature of the research, the descriptive research

method is utilized for the study, as regards the technique of data analysis. Finally the tool

adopted for the study is multiple regression model.

18
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

Introduction
The chapter deals with the presentation and analysis of the data collected. To test the

hypotheses of this study, a multiple regression model is used. This is deemed as suitable due to

the nature of the variables which are continuous rather than dichotomous categorical variables.

Finally, the findings and policy implication of the result are discussed. The table that follows

contains the data extracted from the Nigerian Stock Exchange bulletin and the Central Bank of

Nigeria (CBN) statistical bulletin which was used in running the regression and obtaining the

results of the study.

Multiple regression has been used to estimate the relation between the independent variables of

capital market performance (market capitalization, total new issues, volume of transaction and

listed equities) and the dependent variable (Gross Domestic Product). The technique of

ordinary least square was used to estimate the regression coefficient in the model of the study.

Thus:GDPt = a0t + a1tMCAPt + a2tTNIt + a3tVLTt+ a4tLEQt + ℮ t

19
SAMPLE SURVEY 2023
TABLE 4.1 Aggregate values of dependent and independent variables

YEARS GDP MCAP (TNI) VLT LEQ

(N B) (N B) (N M) (N M)

1996 205,221.1 4,997.8 455.2 332.1 194

1997 199,688.2 4,025.7 533.4 214.8 205

1998 185,598.1 5,768.0 448.5 397.9 212

1999 183,563 5,514.9 159.8 418.2 213

2000 201,036.3 6,670.7 817.2 319.6 220

2001 205,971.4 6,794.8 833.0 494.4 240

2002 204,806.5 8,297.6 450.7 348.0 244

2003 204,806.8 10,020.8 400.0 137.6 253

2004 263,729.6 12,848.6 1,629.9 521.6 267

2005 267,660 16,358.4 9,964.5 265.5 295

2006 265,379.1 23,125.0 1870.0 136.0 239

2007 271,365.5 31,272.6 3,306.3 313.5 251

2008 274,833.3 47,436.1 2,636.9 402.3 272

20
 2009 275,450.6 66,368.0 2,161.7 569.7 276

2010 281,407.4 180,305.1 4,425.6 1,838.8 276

2011 293,745.4 281,815.8 5,858.2 7,062.7 276

2012 302,022.5 281,887.2 10,875.7 11,072.7 264

2013 310,890.1 262,517.3 15,018.1 13,572.3 264

2014 312,183.5 300,041.1 12,038.5 14,027.4 268

2015 329,978.7 472,290.0 17,207.8 28,154.6 260

2016 356,994.3 662,561.3 37,198.8 57,637.2 261

2017 433,203.5 764,975.8 61,284.0 60,088.6 258

2018 477,833 1,359,274.2 180,079.9 120,703.0 265

2019 527,576 2,112,549.6 195,418.4 225,820.6 277

2020 634,251 13,294,059 1,935,080 2,100,000 310

2021 674,889 9,562,970 1,509,230 4,400,000 301

2022 716,949 7,030,800 1,724,214 6,572,000 266

2023 801,700 9,920,000 2,440,000 7,755,000 264

Source: NSE, SEC, CBN (Various issues).

GDP= Gross Domestic Product, MCAP = Market Capitalization, TNI = Total New Issues, VLT
= Volume of Transaction and LEQ = Total Listed Equities.
The results are presented in three sections. Section one presents basic statistics for the data

extracted for the study. Section two presents the regression results and the last section presents

the combined impact of capital market performance on Nigeria’s economic growth.

Basic Sample Statistics

The sample descriptive statistics is first presented in table 4.2; the tolerance and variance

inflation factor are presented in table 4.3,

21
while the correlation matrix is presented in table 4.4

Descriptive Statistics
Table 4.2 shows the mean, standard deviation, minimum, maximum, skewness and kurtosis

values of the variables used in the study. The full results are contained in Appendix A of the

study.

Table 4.2 Descriptive Statistics

VARIAB MEAN STD. MIN MAX SKEWNE KURTOSI

LE DEV. SS S
GDP 3.2544 1.56639 6.75 204.00 0.711 0.16

TNI 1.8820 4.67986 1.94 159.80 2.995 8.666

MCAP 1.3502 3.10126 1.33 4025.70 3.042 9.220

VLT 2.7779 9.02127 4.40 136.00 4.111 17.585

LEQ 2.5868 29.4355 194.00 310.00 -0.538 -0.155

Source: Regression Result using SPSS

Table 4.2 indicates that on the average, during the period of the study the gross domestic

product is about N325, while total new issues, market capitalization, volume of transaction and

listed equities have a mean of N188, N135, N278 and N259 respectively. Market capitalization

has the lowest standard deviation of 3.10 signifying its high contribution to the performance of

the capital market in terms of economic growth. Listed equities have the highest standard

deviation of 29.44 which indicates that it contributes the lowest towards the economic growth.

This can be confirmed by the significant F values of the individual contributions of the

independent variables to the economic growth of Nigeria as shown in table 4.5.

The next table that follows presents tolerance and variance inflation factor values for the test of

multicollinearity between the explanatory variables.

22
Table 4.3: Tolerance Value and Variance Inflation Factor

VARIABLES TOLERANCE VIF

TNI 0.007 1.550

MCAP 0.007 1.926

VLT 0.233 4.295

LEQ 0.663 1.509

Source: Regression Result using SPSS

The tolerance value and the variance inflation factor (VIF) are two advanced measures of

assessing multicollinearity between the independent variables of the study. In table 4.3, the

variance inflation factors are consistently smaller than ten indicating complete absence of

multicollinearity (Neter et al; 1996 and Johansen, 1999).

This shows the appropriateness of fitting the model of the study within the four independent

variables. In addition, the tolerance values are consistently smaller than 1.00 thus further

substantiating the fact that there is no multicollinearity between independent variables

(Tobachmel and Fidell, 1996).

Correlation Matrix

The correlation matrix is used to determine the relationship between the dependent and

independent variables of the study. Table 4.4 below presents the correlation matrix for the

sample observations. The full results are contained in Appendix A.

Table 4.4 Correlation Matrix for the Samples Observed

VARIBLE GDP TNI MCAP VLT LEQ

GDP 1.000

23
 TNI 0.767 1.000

MCAP 0.778 0.996 1.000

VLT 0.641 0.859 0.840 1.000

LEQ 0.703 0.564 0.574 0.451 1.000

Source: Regression Result using SPSS

Table 4.4 indicates that there is a positive relationship between Gross Domestic Product and

total new issues, market capitalization, volume of transaction and listed equities. This implies

that capital market is contributing positively to the growth of the Nigerian economy. The

association between them is positive and highly significant. On the other hand, the relationship

between the independent variables, as shown by the correlation matrix, indicate that the

association between them is above fifty percent (50%) with

the exception of the relationship between volume of transaction and listed equities reaffirming

the absence of multicollinearity.

Test of Hypotheses
The results of the Ordinary Least Square in relation to the impact of capital market performance

on Nigeria’s economic growth are presented and discussed. The study uses four capital market

indices; market capitalization, total new issues, volume of transaction and listed equities as

proxy of capital market performance. The regression results are presented in Table 4.5 below:

24
Table 4.5 Capital market performance and the Nigeria’s Economic Growth

VARIABLE GDP

Intercept 1.262

(0.002)*

MCAP 0.902

(0.004)*

0.483

TNI (0.004)*

VLT 0.215

(0.002)*

LEQ 2.718

(0.012)**

R 0.841

2 0.707
R
ADJ. R2 Adjusted R2 0.656

F. Statistics 13.85

F. Sig 0.000

Durbin Watson 2.032

25
 Source: Regression Result using SPSS

The estimated relationship for the model is GDP = 1.262(a) + 0.902 (MAP) + 0.483 (TNI) +

0.215 (VLT) + 2.718 (LEQ)

The model indicates that all the three proxies of capital market performance have significant

impact on the GDP at 1% level of significance while the remaining one listed equity is at 5%

level of significance. The implication of these results is that the higher the level of capital

market performance the better it is for economic growth in Nigeria. The table above presents

the regression results relating capital market performance and the Nigerian

economic growth. The values in parenthesis tagged with one or two asterisks shows the level of

significance between the intercept and independent variables whiles those values above the

values in parenthesis represent coefficient indicating impact and from R to DW contains the

cumulative results of all the explanatory variables.

The first hypothesis of the study states that market capitalization has no significant impact on

Nigeria’s gross domestic product.

The regression results in Table 4.5 reveal that market capitalization as an explanatory variable

has explained the variations in the economic growth of Nigeria. This implies that as market

capitalization increases this in turn will have a significant impact on economic growth, simply

because of the fact that as investment increases the level of foreign direct investment also

increases. This is because investment levels in the country’s capital market are bound to

increase and the number of investors will as well increase by the same proportion. Eventually,

this will finally boost the activities of the capital market which will impact on the economic

growth of the country. However, the result shows that market capitalization is significant to

Nigeria’s gross domestic product at 1% level of significance. This provides the basis for

rejecting

26
The regression results in Table 4.5 reveal that market capitalization as an explanatory variable

has explained the variations in the economic growth of Nigeria. This implies that as market

capitalization increases this in turn will have a significant impact on economic growth, simply

because of the fact that as investment increases the level of foreign direct investment also

increases. This is because investment levels in the country’s capital market are bound to

increase and the number of investors will as well increase by the same proportion. Eventually,

this will finally boost the activities of the capital market which will impact on the economic

growth of the country. However, the result shows that market capitalization is significant to

Nigeria’s gross domestic product at 1% level of significance. This provides the basis for

rejecting.

hypothesis one of the study. The finding is in line with those of Levine and Zervos (1996) who

argued that capital market performance facilitates economic growth and contrary to Harris

(1997).

Secondly, the regression result on Table 4.5 also reveals that total new issues as one of the

independent variables has significant effect on the Nigerian gross domestic product. The

implication of this is that as new issues of securities are floated in the market, these increases

the number of shares traded in the stock exchange. This in turn increases the amount of trading

activities of the market and finally transcend in improving the economic growth of the untry

27
Thirdly, the hypothesis of the study is also rejected for the fact that the result of the study

provides evidence that the volume of transaction is significant at 1% level of significance on the

economic growth of Nigeria. The implication of this result is that the volume of transaction

demonstrates that a rising stock price increases the wealth of the economy by encouraging

increase in demand for securities and eventually investment. Furthermore, the volume of

transaction as well increases which ultimately has a significant impact on economic growth in

Nigeria.

Finally, hypothesis four of the study is also rejected for the fact that the result produces

evidence of total listed equities is significant at 5% level of significance. This implies that listed

equities plays a very important role in the economic growth of a nation because the efficiency

of the capital market depends on the operating activities of the stock market and the more the

number of quoted companies the better for the market as well as for economic growth. The

finding is in line with those of Barlett (2000) argued that capital market performance impact on

the economic growth of a country and contrary to that of Nyong (1997).

Cumulatively, the explanatory variables have totally associated up to 84%, with the explained

variable as seen on Table 4.5. This signifies that the performance of the capital market is

positively and significantly related with the Nigerian economy. It implies that the higher the

performances of the Nigerian capital market the higher the growth attainable in the Nigerian

economy.

The R2 which is the coefficient of determination (R2) shows 71%. This signifies that the

independent variables have cumulatively explained the dependent variable (GDP) up to 71%

and the remaining 29% is covered by other factors. The implication of this is that the model of

the study is fit and the explanatory variables are appropriately selected. However, this can be

confirmed by the value of the adjusted R2 66% because even after other abnormalities are

adjusted the value is still significant.

28
Finally, the F statistic of 13.8 is significant at 1% level of significance which implies that

capital market performance has positively, strongly and significantly impacted on Nigeria’s

economic growth. The Durbin – Watson (DW) of 2.032 signifies autocorrelation of residuals

will not pose a problem to

the validity of statistical inferences of this study.

Policy Implication of the Findings

Given the empirical results reported above, the following policy implications are drawn. Firstly,

since capital market performance is proxied by market capitalization, total new issues, volume

of transaction and listed equities have statistical positive impact on economic growth, it implies

that market capitalization increases the ability of firms to raise capital. Thus, firms will be able

to increase investment and expand production of goods and services which translates to higher

growth rate. It could therefore be postulated that once the real sector is buoyant in terms of

financing its elements. It should be expected that the sector will expand and productivity will

increase and that cost of production will decline because of the competitive situation,

availability of products, fall in prices etc. However, this goes a long way in increasing the GDP

as well as favouring other economic indices such as favourable balance of payment, decline in

inflation, higher purchasing power of currency etc.

29
Secondly, total new issues have also contributed positively to the economy based on its

standard deviation as shown in Table 4.2. This implies that, it has a significant impact on

economic growth in Nigeria because as new issues are floated on the floor of the exchange

(Stock Market) it also increases the volume of transaction traded on the stock market. This in

turn increases the amount of trade made in a year and equally increases the level of funds traded

in that period. This also increases the number of securities traded and invariably improves the

economic growth of the country.

Thirdly, the volume of transaction has also impacted positively on economic growth as seen in

Table 4.5. This implies that as more volume of transactions is recorded in the capital market it

affects the performance of the market significantly and positively. Ultimately this translates into

the number of turnover of securities which in turn contributes to the economic growth of

Nigeria. We can then infer that volume of transaction has a positive and direct relationship to

the economic growth of the nation and the development of the capital market. Economic growth

relies heavily on the quantum of volume of transaction in the market in order to compete

globally. Therefore, the Nigerian capital market still has a lot to deal with in terms of the

operation activities of

the market in order to compete with the other capital markets of developed countries.

Finally, listed equities are believed to be the least in terms of its contribution to the economy

as can be seen in Table 4.2. The amounts of listed equities have been fluctuating and this

affects the activities and performance of the market. This is could be as a result of the global

financial crisis which affected most of the world financial markets and the Nigerian capital

market is not an exception. Therefore, more needs to be done by the government in order to

improve and restore the confidence of investors back to the market.

Summary of the Chapter

30
The chapter presents and analyses data with the help of models built by the study. The analysis

is made by using descriptive statistics, correlation matrix, tolerance value, variance inflation

factor and Durbin Watson, all in an effort to test the reliability and validity of the data.

The study also adopts ordinary least square regression analysis model for the purpose of testing

the hypothesis formulated in chapter One. The regression equation was constructed for the

purpose of testing the entire hypotheses formulated.

In all, four independent variables are used. These variables are Market Capitalization, Total

New Issues, Volume of Transaction and listed equities. The result of the regression equation

indicates that all the four independent variables have significant positive impact on the

dependent variable and hence provides evidence for the rejection of the null hypotheses

formulated in chapter One.

The study will be of immense contribution to the regulatory authorities such as the CBN, NSE

and SEC in coming up with sound financial policies and reforms that will boost the

performance of the capital market. This would strengthen public companies by ensuring that

corporate governance practices in Nigerian public companies are aligned with

international best practices throughimproved financial disclosure of information and

adoption of InternationalFinancial Report Standards. Finally, future studies may want to share

this experience by extrapolating some of the data as well as the statistical inferences that this

study has come up with.

31
 CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Summary
This study has developed a prudent multiple regression model for the purpose of explaining and

analysing empirically, the impact of capital market performance on economic growth in

Nigeria. Using multiple regression analyses to model development, the study estimates the

relationship between four explanatory variables; market capitalization, total new issues, volume

of transaction and listed equities and one explained variable, Gross Domestic Product, by means

of the ordinary least square technique.

The study hypothesized a significant impact between the four explanatory variables and the

Gross Domestic Product and the findings of the research are based on the time series data

collected for the period 1983 – 2010 from the NSE, SEC and CBN. The result of the study

reveals that the four predictor variables market capitalizations, total new issues, volume of

transaction have an aggregate significant impact at I per cent level of significance and listed

equities is at 5 per cent level of significance on the GDP.

The foregoing provided the justification for the rejection of all the null hypothesis of the study.

The study also reveals that market capitalization, has the highest impact on the GDP followed

by total new issues and then the volume of transaction and finally listed equities.

5.2 Conclusion
Based on the findings of the research, the study concludes as follows:
First, the study has provided evidence on the four independent variables; market capitalization,

total new issues, volume of transaction and listed equities in explaining and predicting

economic growth in Nigeria. The study concluded that the four variables have played a

significant role in influencing the capital market performance on Nigeria’s economic growth.

Secondly, the study also establishes significant positive relationship between total new issues

32
and economic growth. It is therefore concluded that as new issues are raised and floated in the

market, this in turn increases the number

of shares traded and economic growth equally expands as well as impacting on the GDP.

Thirdly, the study documents a significant positive relationship between volume of transaction

and the gross domestic product. This concludes that the volume of transaction is an important

factor in determining the magnitude of trading of shares in the capital market and it goes a long

way in improving the performance of the market and as well increases the efficiency of the

market which invariably improves the economic growth of Nigeria.

Among the predictable variables market capitalization contributes highest to economic growth.

In respect of volume of transaction the study concluded as having the lowest contribution to the

aggregate impact of capital market performance on economic growth in Nigeria.

In addition, in respect of listed equity, the study concludes that listed equity of Nigerian capital

influences the performance of the market and improves economic growth.

Finally, the study concludes that there is a complete absence of serial correction between

market capitalization, total new issues, volume of transaction and listed equities as proxies of

capital market performance.

Also the correlation matrix reveals that, market capitalization has the highest relationship with

economic growth which signifies more contribution of capital market performance to Nigeria’s

economic growth.

5.3 Recommendations
Based on the findings and conclusions of the study, the following recommendations are hereby

presented:

i. Firstly, there is need for improvement in the declining market capitalization by

encouraging more foreign investors to participate in the market, maintain state of the

33
 art technology that will ensure a free flow

of information in the market to attract more investors as well as increase new issues

which will automatically increase the quantum of market capitalization. There is also

the need to restore confidence in the market by the Securities and Exchange

Commission and the Nigerian Stock Exchange through ensuring transparent and fair

trading transactions and dealings in the stock exchange. Government should remove

impediments to market growth in form of legal and regulatory barriers because they

are sometimes disincentives to investment.

ii. Secondly, as observed the total listed equities in the NSE are still very low

compared to other stock markets like those of South Africa and Egypt. Therefore, to

increase the number of listed companies there is need to ensure stable macroeconomic

environment, to encourage foreign multinational companies or their subsidiaries to be

listed on the Nigerian stock exchange and also to improve the trading system in order

to increase the ease with which investors can purchase and sell shares.

Furthermore, the government should invest more and develop the nation’s infrastructure in order to

create an enabling environment for businesses to grow and for productivity and efficiency to thrive

which will bust economic activities

Thirdly, total new issues are very important to the growth of any capital market. Therefore,

government should employ appropriate trade policies such as establishing National Association

of Securities Dealers (NASD) that promote the inflow of international capital and foreign

investment, so as to enhance the production capacity of the nation. The Government should

restore the confidence of shareholders (investors) due to the declining fortune of the stock

market.

34
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 Appendix A

Gross Domestic Product and Performance of the Nigerian Capital Market from 1990
– 2010

Year GDP at Total new Market Volume of Total listing

on
current issues capitalization transactions
the Nigerian
prices (N (Equities (Government Stock
(N M)
B) and Exchange
and debts)
Industrial (Equity,
(N B) securities industrial
loan and
(N M) govt. stock)

1983 205,221.1 455.2 4,997.8 332.1 194

1984 199,688.2 533.4 4,025.7 214.8 205

1985 185,598.1 448.5 5,768.0 397.9 212

1986 183,563 159.8 5,514.9 418.2 213

1987 201,036.3 817.2 6,670.7 319.6 220

1988 205,971.4 833.0 6,794.8 494.4 240

1989 204,806,5 450.7 8,297.6 348.0 244

1990 219,876.8 400.0 10,020.8 137.6 253

1991 263,729.6 1,629.9 12,848.6 521.6 267

1992 267,660 9,964.5 16,358.4 265.5 295

1993 265,379.1 1,870.0 23,125.0 136.0 239

1994 271,365.5 3,306.3 31,272.6 313.5 251

37
1995 274,833.3 2,636.9 47,436.1 402.3 272

1996 275,450.6 2,161.7 66,368.0 569.7 276

1997 281,407.4 4,425.6 180,305.1 1,838.8 276

1998 293,745.4 5,858.2 281,815.8 7,062.7 276

1999 302,022.5 10,875.7 281,887.2 11,072.7 264

2000 310,890.1 15,018.1 262,517.3 13,572.3 264

2001 312,183.5 12,038.5 300,041.1 14,027.4 268

2002 329,978.7 17,207.8 472,290.0 28,154.6 260

2003 356,994.3 37,198.8 662,561.3 57,637.2 261

2004 433,203.5 61,284.0 764,975.8 60,088.6 258

2005 477,833 180,079.9 1,359,274.2 120,703.0 265

2006 527,576 195,418.4 2,112,549.6 225,820.6 277

2007 634,251 1,935,080 13,294,059 2,100,000 310

2008 674,889 1,509,230 9,562,970 4,400,000 301

2009 716,949 1,724,214 7,030,800 6,572,000 266

2010 801,700 2,440,000 9,920,000 7,755,000 264

Source: SEC, NSE, CBN (various issues)

38