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 an investment in fixed assets which in part is financed with monies raised

through the capital market (Udofia, Onwioduokit & Effiong, 2022). 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 (Abu & Aguda, 2015).

The Nigeria Stock Exchange (NSE), which was established in 1961, offers a platform for

trading shares and other financial securities (Akinmade, Adedoyin & Bekun, 2020). Over the

years, this important role of NSE has facilitated the process of mobilizing funds from the

surplus to the deficit units of the economy. As a result of this, a good number of corporations

have been able to improve productive capacity and increase investment, an enabling

environment for economic growth. According to Akinmade, Adedoyin and Bekun (2020), the

Nigerian Capital market consists of the primary market, the secondary market, and the

second-tier security market. The Investment and Securities Act (ISA) accredited the exchange

with the Security and Exchange Commission (SEC) expanding resources to regulate the

market activities. Among the regulatory responsibilities of the SEC are the detection,

investigation and prosecution of manipulation cases, unfair trading practices and other

activities that contravene the market rules (Aliyu, 2014). The Capital market is made up of
1
two inter-related segments. The primary market is the mechanism for raising funds through

the issuance of new securities. The secondary market essentially provides facilities for trading

in (transferring) already issued securities, thereby creating liquidity in the market (Abu &

Aguda, 2015).

Fapetu, Ojo, Balogun and Asaolu (2021) asserted that 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, and changes in the outlook for industry (and/or company) are quickly

embodied in current asset prices. The signal created by the change in the price of 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 a decline in demand, prices drop, and this signal makes

investors 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 in a general increase in output in the economy (Oke, 2014).

Although interest in identifying a formal link between capital market and economic growth is

fundamental, the basic intuition behind this relation is relatively easy to surmise (Udofia,

Onwioduokit & Effiong, 2022). This is because the main goal of the capital market is the

channelling 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 the efficient allocation of the financial resources for the

2
investment is facilitated and thus the frontier of production possibilities is increased (Abina &

Lemea, 2019).

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 (Udo, Nwezeaku & Kanu, 2021). The financial

market, which comprises the capital and money markets as well as other submarkets, plays a

crucial role in the functioning of any modern economy. As the major source of appropriate

long-term funds, the capital market is crucial to any nation’s economic development (Udofia,

Onwioduokit & Effiong, 2022). Specifically, the capital market facilitates economic growth

by, among other things, mobilizing savings from numerous economic units such as

governments, individuals and institutional investors for users such as governments and the

private sector. However, for 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 the capital market performs a vital role in the growth of the

economy by providing the avenue through which foreign investors make an investment in the

country which in turn may boost the growth of the economy in terms of foreign direct

investment.

The impact of the capital market performance is determined by several 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 capital market and the development of the

Nigerian economy.

1.2 Statement of the Problem

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

stable economic growth and development. The most recent reform was carried out 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 provide a variety of financial instruments capable of enabling economic agents to

pool, price and exchange risk. Despite these vital roles that the reform is expected to play,

there is however a great concern about the performance of the Nigerian capital market

concerning 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

the lack of providing an enabling framework that sustained confidence and investors'

protection and also a thorough evaluation of factors that are of significant relevance in

determining capital market performance.

Although from an 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

the 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

the failure to adopt the 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 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 an aggregate data basis to ascertain how influential it is on the economic growth of

Nigeria.

1.3 Objectives of the study

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The main objective of the study is to examine the capital market and the development of the

Nigerian economy. However, the specific objectives are to:

i. Determine the impact of market capitalization on the gross domestic product in Nigeria.

ii. Assess the effect of total new issues on the gross domestic product in Nigeria.

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

Nigeria.

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

Nigeria.

1.4 Research Questions

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

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

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

iii. To what extent does the volume of transactions 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?

1.5 Hypotheses 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.
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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. 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 study focuses on the capital market and the development of the Nigerian economy. The

Nigerian economy has 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 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 growth of the

economy. The choice of the period of study, 2001-2020 is predicated on the reasoning that,

the market has experienced remarkable developmental changes as well as improvement in the

policy framework of the market. This is in terms of its operational activities, increase in the

number of quoted companies and securities, as well as market capitalization. Although, new

issues and volume of transactions have all recorded a significant increase during the period of
6
study but there have been records of the downturn in some years as a result of the global

financial crisis.

1.8 Definition of Terms:

Market Capitalization: the value of a company that is traded on the stock market, calculated

by multiplying the total number of shares by the present share price.

Total new issues: A new issue refers to a new security, whether a stock or bond, being issued

for the first time.

Total Listed Equity: means common equity securities traded on a European or United States

national securities exchange or quoted on the Nigeria Exchange Group (NGX).

Gross domestic product (GDP): is the total monetary or market value of all the finished

goods and services produced within a country's borders in a specific time period.

Capital market: is a place where buyers and sellers indulge in trade (buying/selling) of

financial securities like bonds, stocks, etc. The trading is undertaken by participants such as

individuals and institutions. Capital market trades mostly in long-term securities.

Volume: is an indicator that means the total number of shares that have been bought or sold

in a specific period of time or during the trading day. It will also involve the buying and

selling of every share during the specific time period.

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 CHAPTER TWO
LITERATURE REVIEW
2.1 Conceptual Review
2.1.1 Concept of Capital Market
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 (Udofia, Onwioduokit & Effing, 2022). Abina and Lemea (2021) noted

that the capital market is the medium through which funds are mobilized and channelled

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 (Abina & Lemea, 2019). 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 jurisdiction

to ensure that investors are protected against fraud (Oke, 2014; Abina & Lemea, 2019). Thus,

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

8
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 secondary market (Anigbogu & Nduka, 2014). The Capital market has also been

defined as the market where medium or long-term finance can be raised (Udofia,

Onwioduokit & Effiong, 2022).

Aliyu (2014) noted that the capital market is the market for dealings in terms of Lending and

borrowing in long-term loan able funds, Udo, Nwezeaku and Kanu (2021) described 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. Udofia, Onwioduokit and

Effing (2022) argued 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 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 (Abu & Aguda, 2015). 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. Therefore, the capital market is the market

which deals in long-term funds. In other words, it is a network of financial institutions and

9
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 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 (Fapetu, Balogun &

Asaolu, 2021). 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.

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 (Taiwo, Alaka & Afieroho, 2016). Volume of transaction refers to

the total amount of securities traded in the transaction often determines the level of

transactional activities or the performance of the capital market as far as the business

transaction of the market is concerned and this in turn could have an effect on the growth of

the economy as either positive or negative outcome of the transaction volume (Abina &

Lemea, 2019).

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Equity is the ownership interest in a company in form of common stock or preferred stock.

Equity investment generally refers to the buying and holding of the shares of stock from a

stock market by individuals and firms in anticipation of capital appreciation as the value of

the stock rises. Therefore, the more the numbers of listed equities are available in the capital

market the better for the economic growth of the nation (Nyasha & Odhiambo, 2013).

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 (Oke,

2014). 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.

2.1.2 Market Capitalization

Market capitalization represents the aggregate value of stock size (Ellabbar & Harvard, 2014)

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 (Nyasha &

Odhiambo, 2013). 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 (Udofia, Onwioduokit &

Effing, 2022).

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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.

2.1.3 New Issues

New issues refer to when a company which tries to raise funds by issuing additional shares or

initial public offer to the general public to subscribe for their shares (Fapetu, Ojo, Balogun &

Asaolu, 2021). New issues, usually refer to a security that has been registered by the stock

exchange, issued and is being sold at a market to the public for the first time. New issues are

sometimes referred to as primary shares or new offerings. The term does not necessarily refer

to newly issued stocks, although initial public offerings are the most commonly known new

issues (Udo, Nwezeaku & Kanu, 2021). Therefore, new issues are avenues by which

companies try to raise additional funds in order to carry on with their operation rather than

resorting to the bank for loans or to borrow. However, new issues are, perceived as securities

or shares that are newly floated in the market for subscription by both actual and potential

subscribers.

2.1.4 Volume of Transaction

Volume of Transaction has to do with the number of shares or contracts traded in a security or

in an entire market during a specific period. It is simply the total amount of shares that change

hands between buyers and sellers (Fapetu, Ojo, Balogun, 2019). Volume of transaction is the

number of shares traded in a country's stock market or in an entire market over a specific

period (Udo, Nwezeaku & Kanu, 2021). According to Ugbogbo and Alisen (2017), volume of

12
transaction is an important indicator in technical analysis as it is used to measure the worth of

a market moves. If the market moves significantly up or down, the perceived strength of that

move depends on the volume of trading in that period of time.

2.1.5 Equity Stock

Equity stock is an instrument that signifies an ownership position in a corporation and

represents its proportional share in the corporation's assets and profits. Ownership in the

company is determined by the number of shares a person owns divided by the total number of

shares outstanding (Ugbogbo & Alien, 2017). It is the total assets minus total liabilities; it is

also called shareholder's equity or net-worth or book value (Udofia, Onwioduokit & Effing,

2022).

2.1.6 Economic Growth

Abina and Lemea (2019) opined that economic growth is the increase in the amount of goods

and services produced in an economy which is measured by positive changes in a country's

gross domestic product. Economic growth is the increase in national income, as reflected in

the capacity of production of goods and services regardless of either the increase is on a larger

or smaller population growth rate (Oke, 2014). Abu and Aguda (2015) stated that economic

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

a certain period of time. Overall, economic growth is the increase in a country's productive

capacity, as measured by increase in capital stock, advancement in technology and

improvement in the quality and level of literacy.

2.1.7 Gross Domestic Product

The gross domestic product is a basic measure of a country's overall economic output. It is the

market value of all final goods and services made within the boarder of a country in a year
13
(Oke, 2014). In another sense, gross domestic product is the monetary value of all the finished

goods and services produced within a country's border in a specific time period. Although

GDP is usually calculated on an annual basis, it includes all of private and public

consumption, government outlays, investment and exporters import that occur within a

defined territory (Numapau, 2018).

2.2 Theoretical Framework

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, Under this sub-section

various theories of economic growth have been reviewed among which includes:

2.1.1 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.

2.1.2 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,

14
in 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 2.1.3 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.

2.3 Empirical Studies

Udofia, Onwioduokit and Effing (2022) scrutinize the effect of the Nigerian capital market on

industrial development for the era 1986 to 2018. Data were obtained from the CBN statistical

bulletin and were subjected to diagnostic test, Bounds test, and the error correction

mechanism. The capital market index was captured by market capitalization while industrial

performance index was captured by the contribution of the industrial sector to GDP. The

study utilized the ADF stationarity test, Bounds test for long-run relationship, and error

correction model (ECM). Findings of the study exposed that the Nigerian capital market

positively and significantly influences the industrial sector performance in the short-run and

in the long-run. The result of the Bounds test indicated the existence of a "levels relationship.
15
The ECM indicated that 41.64% of the short-run imbalance is rectified yearly. It is in this

study added that there should be enhancement of the financial systems arrangements and the

overall economic infrastructures to shrink pressure in the system.

Fapets, Ojo, Balogun & Asaolu (2021) examined the relationship between capital market

performance and the macroeconomic dynamics in Nigeria, and it utilized secondary data

spanning 1993 so 2020. The data was analyzed using vector error correction model (VECM).

The result revealed a significant long-run relationship between capital market performance

and macroeconomic dymamics in Nigeria. The study observed long-run causality running

from the exchange rate, inflation, money supply, and unemployment rate to capital market

performance indicator in Nigeria. The result supports the Arbitrage Pricing Theory (APT)

proposition in the Nigerian context. The theory stipulates that the linear relationship between

an assets'3 expected returns and the macroeconomic factors whose dynamics affect the asset's

risk can forecast an asset's returns. In other words, the result of this study supports the

proposition that the dynamics in the exchange rate, inflation, money supply, and

unemployment rate influence the capital market performance.

Udo, Nwezeakos and Kanu (2021) examines the effect of capital market development on the

economic growth of Nigeria using data on Real Gross Domestic Product as a proxy for

economic growth while capital market variables constitute the independent variables. This

includes Market Capitalization, All Share Index, Number of Listed Securities and the number

of listed companies The study adopted an expost-facto research design which utilized

secondary data for the period 1983 -2016. While an Augmented Dickey-Fuller unit root test

was used for preliminary analysis; an Autoregressive Distributed Lag (ARDL) was used for

the mode estimation. _A combination of ARDL bounds test for co-integration, ARDL short

and long run error correction models were used for estimation. All the tests helped to confirm

16
the integrity of our models. Findings of the study indicate that, the number of listed securities

and all share index maintained a significant relationship with economic growth in Nigeria

both in the short and long runs.

Akintola, Oji-Okoro and Itodo (2020) investigated the impact of the financial sector

development on economic growth in Nigeria, by looking at the independent contributions of

the money, capital and foreign exchange markets to the growth of the economy, using

quarterly data between 2001 and 2019. The results indicated that while financial deepening,

banking system liquidity and all share index had positive and significant impact on the growth

of real output in the long-run, the behaviour of exchange rate spread was consistent with

falling levels of real output growth.

Oke (2014) examined the role of the Nigerian Capital Market in achieving the vision 20: 2020

in Nigeria. However, the main aim of vision 20:2020 is to improve the standard of living of

the average Nigerian. The study applied co-integration and error correction modelling to stock

market performance and per capital income time series data, this study has helped in

highlighting the specific roles of major indicators of the capital market, which are relevant in

testing the stock market-economic growth nexus. The findings indicate the separate roles

played by the primary capital market and the secondary capital market in the growth of the

Nigerian economy are capable of achieving vision 20:2020. The evidence from this study

revealed that while activities in the secondary capital market lend to grow the Nigerian

economy through its wealth effect that of the primary market ironically did not.

Abina and Lemea (2019) examined capital market and performance of Nigeria economy. The

study made use of secondary data which were sourced from Central Bank of Nigeria

Statistical Bulletin, for the period spanning through from 1985 to 2017. Stationary, Johansen

Co-integration, Error correction and Granger Causality tests were executed. The result reveals
17
that there was a long run positive relationship among the variables, the result of the Granger

Causality test shows two significant unidirectional causalities flowing from gross domestic

product to total market capitalization and to total value of new issues respectively. Thus, the

study posits that capital market is a strong driver of economic growth in Nigeria for both

public and private entities for medium and long-term investment. As such, a sound

institutional framework for the regulation of the actors in the market so as to inspire investors;

confidence and for the sustainability needs to be emphasized.

Abu and Aguda (2015) examined the nature of the relationship that existed between stock

market development and the level of investment with regards to both domestic private

investment and foreign private investment flows in Nigeria. They observed that stock market

development promotes domestic private investment flows thus enhancing the economy'

production capacity as well as promoting national output. However, the results show that

stock market development has not been able to encourage the flow of foreign private

investment in Nigeria. This is as a result of strict regulatory policies of the Nigerian Stock

Exchange; there is no enabling environment that can enhance the inflow of foreign direct

investment into the country which will go a long way in boosting the activities and

performance of the capital market which will subsequently transcend into economic growth.

Ehigiamusoe (2012) examined the place of financial markets in the development process in

Nigeria. The study used descriptive approach and discovered that financial markets play

fundamental role in the development process. However, the overall performance of the

Nigeria's financial market despite some expansion in recent times has been below its

potential. In particular, as propellers of economic development, the markets have not been

able to meet their goals such as accelerating industrial development, promoting the rate of

investment, generating employment opportunities, providing services that help accelerate

18
poverty reduction, promoting human capital development, and accelerating agricultural

productivity. Some of the challenges confronting the Nigeria's financial markets include;

dearth of instruments and lack of market breadth and depth, the oligopolistic structure of the

markets, dependence on government, slow growth of the secondary market and information

gap and asymmetry.

Akenten, Boateng and Kiros (2020) assessed the role of the capital market in propelling

economic growth in Ghana. The econometric results indicated that stock market development

(market capitalization GDP ratio) increases economic growth. However, the findings of the

study included among others, development of the nation's infrastructure to create an enabling

environment where business can strive, embark on reforms that will change the activities of

the Ghana Securities and Exchange Commission in order to facilitate the growth of the

market. Although the result of the study looks appealing, the Nigerian stock market is still

very low in terms of market size, operational activities and corporate governance when

compared with other African stock markets such as those of South Africa and Egypt, for

instance.

Adan (2014) explores the relationship between financial development and growth in South

Korea during the period of 1974-2009. The overall endogeneity I of the relationship between

financial development and growth is an unresolved issue and it is still not proved. The study

finds Reverse causality between financial development and growth in South Korea in most of

the cases. Therefore it will be true to say that economic growth has created the demand and

importance of financial services in South Korean economy. The economy of Korea is creating

opportunities for financial deepening and welcomes financial integration.

Ugbogbo and Aisien (2020) examined the impact of capital market development on economic

growth using time series data from Nigeria for the period 1981-2016. The co-integration and
19
error correction model was employed for the empirical analysis and selected variables were

found to be co-integrated. The empirical result revealed that capital market development has

significant and positive impact on economic growth in Nigeria both in the short run and in the

long run. Other significant variables in the empirical result were interest rate, money supply

and investment level. The paper, thus, recommended that the government should inject much

fund into the capital market and implement appropriate reform policies aimed at ensuring

reliable, efficient and stable stock market in Nigeria.

Taiwo, Alaka and Afieroho (2016) evaluated the contribution of capital market to the growth

of Nigeria's economy. To achieve this objective, an error correction model was estimated for

economic growth in Nigeria, using Vector Error Correction techniques on an annual time

seres data spanning from 1981 to 2014, the data were subjected to Phillip Perron Unit Root

Test at level and first difference. The result shows that, at one percent significance level, all

the variables were stationary at first differencing. The result of the normalized cointegrated

series fürther reveals that market capitalization rate, total value of listed securities, labor force

participation rate, accumulated savings and capital formation are significant macroeconomic

determinants factors of economic growth in Nigeria.

Nyasha and Odhiambo (2013) revealed that exchange responded positively to most of these

reforms, but not so positively to others. As a result of the reforms, the U.K.'s stock market has

developed, in terms of market capitalisation, the total value of stocks traded and the turnover

ratio. Although the UK stock market has developed over the years, it still faces wide-ranging

challenges, such as the uncertainties that come with new regulation and regulatory changes

dominating at both domestic and international levels and the sovereign debt crisis that has left

the U.K, stock market volatile.

20
Ellabbar and Harvard (2014) examined the effects of absence of capital Market on Libyan

privatisation programmes as well as trying to answer the question. Although, recently Libya

makes many important steps toward privatisation and the encouragement of foreign capital

investment, but with the absence of capital market, it might be difficult for Libya to do

successful Privatisation programmes. That is because of obstacles toward both investments

(local or foreign) to sell the shares after buy it directly from government of privatised

companies.

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 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.

3.1 Research Design

The study was conducted using a correlational research approach. The statistical link between

two or more variables is described using the correlational study design. As a result, it is seen

to be the best choice for this study since it allows for the testing of expected correlations

between and among variables, as well as the prediction of these relationships. Correlational

research design is adopted because the study is empirical in nature and that the research seeks

to establish link between the variables.

3.3 Sources and Data Collection

21
The data used in this study has been collected from secondary sources. The instrument

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

the Central Bank of Nigeria (CBN) 2021 Statistical bulletin. The study utilizes the secondary

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

for the research work. The research work relied on secondary source of data that are mainly

obtained from the CBN Statistical Bulletin, this is because they give a direction to the

research work.

3.2 Study Population

The population of this study constitutes all data (market capitalization, total new issues,

volume of the transaction and total listed equities) from year 1990.

3.3 Sampling Technique and Sample Size

This study adopted a purposive sampling technique. According to Adefila (2008), judgmental

or purposive sampling technique is a technique under which the researcher will intentionally

select certain groups or individuals as samples mainly because of their relevance to the

investigation being carried out. The study will select a period of twenty-one (21) years i.e.,

2001 to 2021 due to availability of data.

3.4 Descriptive of Variables

Market Capitalization: Ugbogbo and Alisen (2017) defined market capitalization as that the

value of a company that is traded on the stock, market, calculated by multiplying the total

number of the shares by the present share price.

22
Total New Issues: According to Fapetu, Ojo, Balogun and Asaolu (2021), a new issue refers

to a new security, whether a stock or bond, being issued for the first time

Total Listed Equity: Abina and Lemea (2019) defined total listed equity as common equity

securities traded on a European or United States national securities exchange or quoted on the

Nigerian Stock Exchange market (NSE).

Gross Domestic Product (GDP): is the total monetary or market value of all the finished

goods and services produced within a country’s borders in a specific time period (Ugbogbo &

Alisen, 2017).

3.5 Method of Data Analysis

Descriptive statistics would be employed to summarise the data. Multiple regression analysis

would be used to determine whether the capital market indices (market capitalization, total

new issues, volume of the transaction and total listed equities) have impacted significantly on

the economic growth using E-view version 10.

3.5.1 Model of Specification

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

Y= a +bx

GDP=α0t + αlMCAPl + α2TNI2 +α3VLT3 + α4tLEQ4 +et

Where:

GDP= Gross Domestic Product α0= Regression Constant

αl – α4= Coefficient of independent variables.

MCAP= Market capitalization

TNI= Total New issues

23
VLT= Volume of Transactions

LE= Listed Equities

e= Stochastic Error term (Disturbance term)

3.5.2 Approri Expectation

The economic a priori test shall be conducted to enable us examine the magnitude and size of

the parameter estimate. This evaluation is guided by economic theory to ascertain if the

parameter estimate conforms to expectation. Theoretically, the following are the predicted

connections or relationship between the dependent and independent variables:

Variable Expected Results

Market Capitalization +

Total New Issues +

Volume of Transaction +

Listed Equities +

Decision rule: Null hypothesis should be rejected if the p-value is > 5% significance level,

otherwise it should be accepted. The basic reason for testing only 5% level of significance is

that the fact that the study aims at minimizing the possibility of type one error, which can be

committed where level of significance is chose to be high.

24
 CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.0 Introduction

The study sought to examine the impact of capital market on economic growth in Nigeria.

Presentation of the findings from the data analysis in line with the research objectives is done

in this chapter. The analysis was carried as follows; data presentation, descriptive statistics

and multiple regression analysis.

4.1 Data Presentation

Table 1: Data relating to RGDP, Market Capitalisation, Volume of transaction, Total new issues
and Total listed equities
MCP
YEAR RGDP (#’billion) (#’billion) VLT (#’billion) TNI (#’billion) LEQ (#’billion)
2001 8,234.49 648.45 648.40 57.68 57.65
2002 11,501.45 748.70 748.70 59.41 59.40
2003 13,556.97 1,324.90 1,325.70 120.40 113.88
2004 18,124.06 1,925.94 1,926.50 225.82 223.77
2005 23,121.88 2,523.49 2,523.50 262.94 254.68
2006 30,375.18 4,227.13 4,227.13 470.25 468.59
2007 34,675.94 10,180.29 10,180.29 1,076.02 1,074.88

25
 2008 39,954.21 6,957.45 6,957.45 1,679.14 1,675.61
2009 43,461.46 4,989.39 4,989.39 685.72 683.93
2010 55,469.35 7,913.75 7,913.75 799.91 799.19
2011 63,713.36 6,532.58 6,532.58 638.93 638.75
2012 72,599.63 8,974.45 8,974.45 808.99 808.42
2013 81,009.96 13,226.00 13,226.00 2,350.88 2,349.87
2014 90,136.98 11,477.66 11,477.66 1,338.60 1,337.93
2015 95,177.74 9,850.61 9,850.61 978.05 977.44
2016 102,575.42 9,246.92 9,246.92 577.82 575.70
2017 114,899.25 13,609.47 13,609.47 1,078.49 1,077.27
2018 129,086.91 11,720.72 11,720.72 1,203.37 1,202.22
2019 145,639.14 12,968.59 12,968.59 931.48 925.28
2020 154,252.32 21,056.76 21,056.76 1,086.18 1,028.17
2021 176,075.50 22,296.84 22,296.84 953.87 916.12
Source: CBN Statistical Bulletin (2021)

Table 2: Descriptive Statistics

GDP MCP VLT TNI LEQ
 Mean  71601.96  8685.719  8685.781  827.8071  821.3690
 Median  63713.36  8974.450  8974.450  808.9900  808.4200
 Maximum  176075.5  22296.84  22296.84  2350.880  2349.870
 Minimum  8234.490  648.4500  648.4000  57.68000  57.65000
 Std. Dev.  50862.94  4030.302  4040.225  561.2331  589.1316
 Skewness  0.513496  0.615066  0.615104  0.770181  0.796003
 Kurtosis  2.136048  2.936841  2.936891  3.817061  3.879068
 Jarque-Bera  1.575986  1.327564  1.327721  2.660263  2.893836
 Probability  0.454757  0.514900  0.514860  0.264442  0.235294
 Sum  1503641.  182400.1  182401.4  17383.95  17248.75
 Sum Sq. Dev.  5.17E+10  7.30E+08  7.30E+08  6299651  6274949
 Observations  21  21  21  21  21
Source: Author’s Computations (2022)

The summary statistics of the study variables is well shown in Table 2. The average value of

RGDP is estimated to be #71,601.96 billion for the period under consideration with a

minimum and maximum value of #8234.49 billion and #176,075.5 billion respectively with

standard deviation of #50,862.94 billion.

26
Table 2 further indicates that on the average, market capitalization, volume of transaction,

total new issues and listed equities have a mean of #8685.719 billion, #8685.781 billion,

#827.8071 billion and #821.369 billion respectively. Market capitalisation has the lowest

standard deviation signifying its high contribution to the performance of the capital market in

terms of economic growth. Listed equities have the highest standard deviation which indicates

that it contributes the lowest towards the economic growth.

4.2 Test of Hypotheses

Table 3: Regression Analysis
Dependent Variable: RGDP
Method: Least Squares
Sample: 2001 2021
Included observations: 21

Variable Coefficient Std. Error t-Statistic Prob.  

C 2.554782 0.673830 3.791437 0.0016

0.004651 0.000218 21.33486 0.0000
log(MCP)
0.004249 0.001321 3.21653 0.0008
log(VLT)
0.001792 0.000225 7.964444 0.0000
log(TNI)
log(LEQ) 5.107879 4.582862 1.114561 0.2815

R-squared 0.936328    Mean dependent var 10.85764

Adjusted R-squared 0.920410    S.D. dependent var 0.907504
S.E. of regression 0.256022    Akaike info criterion 0.317152
Sum squared resid 1.048759    Schwarz criterion 0.565848
Log likelihood 1.669899    Hannan-Quinn criter. 0.371126
F-statistic 58.82201    Durbin-Watson stat 1.649236
Prob(F-statistic) 0.000000

Source: Author’s Computations (2022)

27
The OLS regression revealed the R-squared value of 93.6% variation in the dependent

variable (RGDP) and this was jointly caused by the independent variables (market

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

RGDP cannot be 100 percent explained by the variables employed in this study. The

remaining 6.4% unexplained part of the dependent variable can be attributed to exclusion of

other factors that can explain the dependent variable but are outside the scope of this study.

The P-value of 0.000000 and F-statistics of 58.82201 from the OLS regression model is

showed that the relationship between dependent and independent variables were statistically

significant at 5% level. Interpreting the individual effect, the estimate result reveals that

market capitalization has a positive coefficient of 0.004651 and P-value 0.0000 <0.05, it

implies that a percentage increase in market capitalization significantly increases economic

growth of Nigeria by 0.4651%. Also, the estimate result reveals that volume of transaction has

a positive coefficient of 0.004249 and P-value 0.0008 <0.05, it implies that a percentage

increase in volume of transaction significantly increases economic growth of Nigeria by

0.4249%. Furthermore, the estimate result reveals that total new issues has a positive

coefficient of 0.001792 and P-value 0.0000 <0.05, it implies that a percentage increase in total

new issues significantly increases economic growth of Nigeria by 0.1792%. However, the

estimate result reveals that listed equities has a positive coefficient of 5.107879and P-value

0.2815 >0.05, it implies that a percentage increase in listed equities does not significantly

increases economic growth of Nigeria.

Hypothesis One

The estimate result reveals that market capitalization has a positive coefficient of 0.004651

and P-value 0.0000 <0.05, it implies that a percentage increase in market capitalization

significantly increases economic growth of Nigeria by 0.4651%. We therefore, reject the null

28
hypothesis of no significant relationship between market capitalization and economic growth

in Nigeria.

Hypothesis Two

The estimate result reveals that volume of transaction has a positive coefficient of 0.004249

and P-value 0.0008 <0.05, it implies that a percentage increase in volume of transaction

significantly increases economic growth of Nigeria by 0.4249%. We therefore, reject the null

hypothesis of no significant relationship between volume of transaction and economic growth

in Nigeria.

Hypothesis Three

The estimate result reveals that total new issues has a positive coefficient of 0.001792 and P-

value 0.0000 <0.05, it implies that a percentage increase in total new issues significantly

increases economic growth of Nigeria by 0.1792%. We therefore, reject the null hypothesis of

no significant relationship between total new issues and economic growth in Nigeria.

Hypothesis Four

The estimate result reveals that listed equities has a positive coefficient of 5.107879 and P-

value 0.2815 >0.05, it implies that a percentage increase in listed equities does not

significantly increases economic growth of Nigeria. We therefore, accept the null hypothesis

of no significant relationship between listed equities and economic growth in Nigeria.

29
4.3 Discussion of Findings

The study examined the impact of capital market on economic growth in Nigeria. The

estimate result reveals that market capitalization has a positive coefficient of 0.004651 and P-

value 0.0000 <0.05, it implies that a percentage increase in market capitalization significantly

increases economic growth of Nigeria by 0.4651%. We therefore, reject the null hypothesis of

no significant relationship between market capitalization and economic growth in Nigeria but

concluded that market capitalization has positive and significant impact on economic growth

measured by gross domestic product in Nigeria. In related to the findings, Udofia,

Onwioduokit and Effing (2022); Fapets, Ojo, Balogun & Asaolu (2021); Udo, Nwezeakos and

Kanu (2021); Akintola, Oji-Okoro and Itodo (2020) revealed that capital market had positive

and significant impact on the growth. Also, Oke (2014) revealed that secondary capital

market lend to grow the Nigerian economy. Abina and Lemea (2019) concluded that study

posits that capital market is a strong driver of economic growth in Nigeria for both public and

private entities for medium and long-term investment. On the contrary, Adan (2014) and Abu

and Aguda (2015) revealed that stock market development has not been able to encourage the

economic growth in Nigeria.

Also, the estimate result reveals that volume of transaction has a positive coefficient of

0.004249 and P-value 0.0008 <0.05, it implies that a percentage increase in volume of

transaction significantly increases economic growth of Nigeria by 0.4249%. We therefore,

reject the null hypothesis of no significant relationship between volume of transaction and

economic growth in Nigeria but concluded that volume of transaction has positive and

significant impact on economic growth measured by gross domestic product in Nigeria.

According to the results, the capital market had a good and considerable influence on growth,

according to Udofia, Onwioduokit, and Effing (2022); Fapets, Ojo, Balogun, and Asaolu

30
(2021); Udo, Nwezeakos, and Kanu (2021); and Akintola, Oji-Okoro, and Itodo (2020). Oke

(2014) also indicated that lending from the secondary capital market helped the Nigerian

economy expand. According to Abina and Lemea's conclusion in 2019, the capital market is a

significant contributor to economic growth in Nigeria for both public and private

organizations when it comes to medium- and long-term investment. Adan (2014) and Abu and

Aguda (2015), on the other hand, found that the development of Nigeria's stock market has

not been able to support the country's economic expansion.

Furthermore, the estimate result reveals that total new issues has a positive coefficient of

0.001792 and P-value 0.0000 <0.05, it implies that a percentage increase in total new issues

significantly increases economic growth of Nigeria by 0.1792%. We therefore, reject the null

hypothesis of no significant relationship between total new issues and economic growth in

Nigeria but accepted alternative hypothesis state that total new issues has positive and

significant effect on Nigeria’s gross domestic product. In related to the findings, Udofia,

Onwioduokit and Effing (2022); Fapets, Ojo, Balogun & Asaolu (2021); Udo, Nwezeakos and

Kanu (2021); Akintola, Oji-Okoro and Itodo (2020) revealed that capital market had positive

and significant impact on the growth. Also, Oke (2014) revealed that secondary capital

market lend to grow the Nigerian economy. Abina and Lemea (2019) concluded that study

posits that capital market is a strong driver of economic growth in Nigeria for both public and

private entities for medium and long-term investment. On the contrary, Adan (2014) and Abu

and Aguda (2015) revealed that stock market development has not been able to encourage the

economic growth in Nigeria.

Lastly, the estimate result reveals that listed equities has a positive coefficient of 5.107879

and P-value 0.2815 >0.05, it implies that a percentage increase in listed equities does not

significantly increases economic growth of Nigeria. We therefore, accept the null hypothesis

31
of no significant relationship between listed equities and economic growth in Nigeria but

accepted null hypothesis state that total listed equities do not have significant effect on

Nigeria’s gross domestic product. In related to the findings, Adan (2014); and Abu and Aguda

(2015) found that the development of Nigeria's stock market has not been able to support the

country's economic expansion. On the contrary, Udofia, Onwioduokit, and Effing (2022);

Fapets, Ojo, Balogun, and Asaolu (2021); Udo, Nwezeakos, and Kanu (2021); and Akintola,

Oji-Okoro, and Itodo (2020). Oke (2014) also indicated that capital market helped the

Nigerian economy expand.

CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
The study examined the capital market and the development of Nigerian economic growth

from 2001 to 2021. Chapter one set out the background on capital market and why this study

was necessary due to the crucial role of capital market on the economic growth. Also, the

study set out the research objectives, research questions, research hypotheses, definition of

terms, scope and significance of the study. Chapter two reviewed relevant literature on capital

market and economic growth in Nigeria. The chapter dwelled on the conceptual review,

theoretical review and empirical review and the research gap. Also outlined and discussed

were theories around capital market and economic growth. The study is anchored on Arrow

Kenneth Growth theory. Chapter three encompassed the methodology employed for this
32
study. In it were discussions on the research design, the population of the study, sample size

and the sampling technique deployed. Also discussed were data sources and model

specifications for the study. The variables deployed in the study were measured, and the

estimation technique spelt out. Chapter four was about the results and discussions of the

findings of this study. The study revealed that market capitalization has positive and

significant impact on economic growth measured by gross domestic product in Nigeria. Also,

total new issues have positive and significant impact on economic growth measured by gross

domestic product in Nigeria. Volume of transaction has positive and significant impact on

economic growth measured by gross domestic product in Nigeria, however, total listed

equities have positive but insignificant impact on economic growth measured by gross

domestic product in Nigeria. Chapter five includes summary of the study's findings, as well as

conclusions, recommendations and limitations of the study.

5.2 Conclusion

The study examined the capital market and the development of Nigerian economic growth

from 2001 to 2021. The study 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 revealed that the four variables jointly

played a significant role in influencing the development of Nigerian economic growth. The

study revealed that market capitalization has positive and significant impact on economic

growth measured by gross domestic product in Nigeria. Also, total new issues have positive

and significant impact on economic growth measured by gross domestic product in Nigeria.

33
Similarly, volume of transaction has positive and significant impact on economic growth

measured by gross domestic product in Nigeria. However, total listed equities have positive

but insignificant impact on economic growth measured by gross domestic product in Nigeria.

Hence, the study concluded that capital market had positive and the development of Nigerian

economic growth.

5.3 Recommendations

Base on the findings of the study, the following recommendations are made:

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

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 the 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.

34
iii. Thirdly, 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.

iv. Also, 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.

v. Finally, the volume of transaction needs to be boosted by NSE through introducing

more derivatives, convertibles, futures and options in the markets in order to meet up

with other markets of the world.

5.4 Limitations of the Study

Secondary data was gathered from the CBN bulletins 2021. Market capitalization,

total new issues, volume of transaction and listed equities were the only variables

examined. The study covered a period of 2001-2021, limiting the total number of

observations for all data used in this study to 21.

35
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