INSTITUTIONAL QUALITY AND STOCK MARKET DEVELOPMENT IN NIGERIA – An Application of the ARDL Approach ( Economics Education Project Topics)
ABSTRACT
This study was motivated by the growing concern on the impact of Institutional Quality on economic outcomes. The study focused specifically on the Nigerian Stock Market due to its critical role in the economy as a vehicle for efficient resource allocation. The Autoregressive Distributed Lag (ARDL) bounds testing procedure is employed using data from 1985 to 2012. The study used the ARDL model to ascertain the long-run impact of institutional quality on stock market development in Nigeria. The results from Empirical analysis of level of corruption, democratic accountability and bureaucratic quality exert significant impacts on stock market development as measured by market capitalisation ratio. Also, Banking sector development and stock market liquidity contribute significantly to stock market development. Moreover, a unidirectional causality runs from institutional quality to stock market development. The study therefore, recommends that the fight against corruption should be intensified while the market administrative and regulatory qualities should be enhanced for a sustainable stock market development in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1       Background to the Study:
The role of institutional quality in sustainable development has received tremendous attention in recent time and it has been a central issue in development policies of many nations toorchestrate an insurmountable institution because of its critical position in the development of financial system and stock market in particular. Institution plays a pivotal role in promotingthe enactment of rules and regulations, for proper surveillance of political, social andeconomic activities globally. Furthermore, viable institutions support macroeconomicstability and promote social cohesion, thus accelerating market efficiency and business development. It has been inferred that countries with  efficient  working  institutions advances  strong legal  framework  for  the  promotion  of efficient mobilization andallocation of funds, thereby creating less risky business environment. Consequently, theabsence of adequate regulatory framework and supervision could erode the investors’confidence which will undermine the performance of the stock market (Law and Azman-Saini, 2008).
The deepening and broadening of the stock market in Nigeria presents an importantconcern to the policy makers (Manasseh et.al, 2014). This has brought to bear manyinstitutional reforms such as the establishment of the investment and securities tribunal (IST) for investors protection, central securities clearing system (CSCS) for transparency, andprologue of other new practices in the market like; the introduction of automated tradingsystem (ATS), Desk for phone-in- service, trade alert introduced by CSCS, a daytransaction clearance (T+1) as against T + 14, introduction of the capital trade point by investment securities Act (ISA), introduction of market makers, and the establishment of Real Estate Investment Schemes  (Manasseh et. al, 2012). Even though the market is erraticin its performance over time, the introduction of these practices and the  newly  established policy incorporating  small  and  medium  business  enterprises  in  the activities of the market have brought some remarkable improvement in the performance of Nigeria stock market.
According to NSE (2013), the market performance shows that the number of securities listedon the stock exchange have grown greatly. For example, in 1961, the number of securities listed was 8, but have grown to 190 on average between 1971 and 2010. It was also noted that the market capitalization has soared from N6.6 billion in 1985 to about N12 trillion onaverages between 1995 and 2010. However, at the end of 2013, the impressive performanceof the market climbs to 47.2 percent return compared to 35.5 percent in 2012, and N13.226 trillion market capitalisation compared to N8.97 trillion recorded at the end of 2012respectively. While NSE All Share Index which tracks the performance of the stockexchange blown to above 40,000 points compared to 28,078.81 points at the end of 2012, the portfolio of investors’ worth grew by N4.25 trillion.
Even in the presence of the recorded remarkable improvement in recent time, as shown infigure1 below, it is evident that the Nigeria stock market is the least in terms of marketcapitalisation compared to other emerging markets like Kuala Lumpur stock market ofMalaysia; Singapore stock market and Johannesburg stock market of South Africa (WorldBank, 2012)……
