International Journal of Research and Innovation in Social Science (IJRISS) | Volume VI, Issue VIII, August 2022 | ISSN 2454–6186
Financial Sector Liberalisation and Capital Market Growth in Nigeria
Adeyefa, Felix Ademola
Department of Accountancy, Rufus Giwa Polytechnic, Owo, Ondo State, Nigeria
Abstract: The study examined financial sector liberalisation and capital market growth in Nigeria from 1985 to 2021 with secondary data sourced from the Central Bank of Nigeria Statistical Bulletin. The two formulated hypotheses were tested with the Augmented Dickey-Fuller (ADF) and error correction mechanism. Findings from the study revealed that broad money supply and credit to private sector have a positive and significant effect on both market capitalisation and volume of transactions. Also, cash reserve requirements and exchange rate have negative and significant effects on both market capitalisation and volume of transactions. Interest rates have significant and positive effects on market capitalisation and significant negative effects on volume of stock transactions. Foreign direct investment has a positive and insignificant effect on market capitalisation and volume of transactions. The study recommended that the monetary authority in Nigeria must continually improve the monetary policy to control the money supply in the economy and reduce the interest rate to enhance capital market expansion. Also, the Nigerian government should encourage more exports to create a positive relationship between exchange rate and stock prices. This will make local currency depreciate and local firms will become more competitive, leading to an increase in stock prices.
Keywords: Financial market, Stock transactions, Money supply, Monetary policy and Exchange rate
I. INTRODUCTION
The financial sector is a segment of the economy that consists of businesses and institutions that offer financial services for wholesale and retail trades. In this sector are many businesses such as; banks, investment firms, venture capitalist firms, and insurance providers. Nigeria’s financial industry is categorised into bank and non-bank financial institutions. Regulatory agencies have made efforts to liberalise the financial institutions in Nigeria by developing policies to improve the financial sector’s performance in Nigeria. One of these policies is financial liberalisation. Financial liberalisation refers to weakening or eliminating governmental oversight over agents’ institutional framework, tools, and operations in various financial sectors. Oshikoya (1992) stated that the financial liberalization theory argued that the economy grows through financial deepening and financial sector reform. Financial deepening refers to an increase in the number of financial services available to all segments of the economy to increase the diversification of financial risks (Adeyefa & Obamuyi, 2018).