Abstract
The growth of an emerging capital market is necessary and requires all available resources and inputs from various sources to realize this objective. Several debates on government bonds’ contribution to Nigeria’s capital market developmental growth have ensued but have not triggered comprehensive studies in this area. The present research work seeks to close the breach by probing the impact of government bonds on developing the capital market in Nigeria from 2003–2019. We employ total market capitalization as the response variable to proxy the capital market, while various government bonds serve as the independent variables. The inflation rate moderates the predictor components. The research uses multiple regression technique to assess the explanatory variables’ impact on the total market capitalization. At the same time, diagnostic tests help guarantee the normality of the regression model’s data distribution and appropriateness. The findings reveal that the Federal Government of Nigeria’s (FGN) bond is statistically significant and positive in influencing Nigeria’s capital market growth. The other predictor variables are not found significant in this study. The study suggests that the Government should improve on the government bonds’ coupon, while still upholding the none default norm in paying interest and refunding principal to investors when due.
Highlights
Capital markets are marketplaces for interchanging of long-term financial securities.These securities include ordinary stocks, long term debt securities, such as debentures, loose debt stock, and translatable bonds
The inflation data are collected in percentage, while the information on total market capitalization, Federal Government of Nigeria (FGN) bonds, treasury bonds, and bonds/debt is obtained in their local currency
The econometric relationship between the response and explanatory variables used in this study are shown in their logarithm format in Equation (2), where: LogTMC = Total Market Capitalization communicated in log form; LogFGB = FGN Bonds conveyed in its logarithm type; LogTRB =Treasury Bonds shown as a log; LogBND = Bonds/Debts provided in a log format; LogINF = Inflation Rate express in a log form; β0 = Constant; β1 –β4 = Regression coefficients; and μ = Error term
Summary
Capital markets are marketplaces for interchanging of long-term financial securities. According to Reference [1], capital market in Nigeria affords a podium that helps to market administration stocks and other securities, such as commitment instrument or bonds, equities, and exchange trust fund. The capital market is the only place the Government can access the lenders who are willing to lend to the Government by exchanging their money with government bonds and securities. Regime bonds are low-risk investments but debt-based These types of debt security are associated with periodic payments of interests referred to as coupon payments [5]. This study helps to bridge the gap by providing empirical evidence on government bonds’ impact on capital market development in Nigeria. The present study is invariably assessing the four major components of government bonds in Nigeria and the level of innovation they have caused in the capital market evolution.
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