Examining the long-run relationship between stock market development and Nigerian economic growth

Abstract

Purpose This paper aims to examine the long-run relationship between stock market development and Nigerian economic growth from 1980 to 2020. Design/methodology/approach Market capitalization, number of listed companies, total value traded ratio and turnover ratio are used. An autoregressive distributed lag model is used for the analysis. Findings The market capitalization ratio and turnover ratio have positively significant links with economic growth. The number of listed companies has a negative and non-significant impact on economic growth. Total value traded ratio has a negatively significant link with economic growth in the short run. The positive but insignificant relationship between traded value ratio and turnover ratio in the long run growth means that the Nigerian stock market is growth inducing and on the right track as stock market liquidity drives growth. Research limitations/implications The government and Security Exchange Commission should increase the market liquidity level by improving the trading infrastructure. The government and regulatory authorities should improve and effectively implement the existing policies that would ensure stock market growth. This facilitates the investors’ speed to purchase and sell shares. The Securities and Exchange Commission should reduce transaction costs to encourage active trading activities. The market should be diversified with investment instruments such as derivatives, futures and swap options which would limit the adverse effect of listed companies in the market. To increase the stock market liquidity, the Security and Exchange Commission should apply moral suasion to bring private companies that have met certain financial thresholds to convert to public companies. Government should improve on the legislation to encourage more private companies to list on the stock exchange. Originality/value The study findings add value in that stock market development has a positive impact on economic growth in Nigeria.