Effect Of Stock Market Development Research Articles

Effect of Formal Financial Sector on Financial Deepening in Nigeria

This study examined the effect of the formal financial sector on financial deepening in Nigeria for the period 2012Q1 to 2022Q3. The specific objectives of the study were to investigate the effect of deposit money bank development on financial deepening in Nigeria; to assess the effect of the insurance industry development on financial deepening in Nigeria; to determine the effect of stock market development on financial deepening in Nigeria. The study adopted an ex-post facto research design from the quarterly time series data generated from the Central Bank of Nigeria statistical bulletin on deposit money bank development, insurance industry development, stock market development, and financial deepening. The data were analysed using the Johansen co-integration test and Fully Modified Ordinary Least Squares estimation. The findings showed that both deposit money bank development and insurance industry development have significant effects on financial deepening in Nigeria, but stock market development has an insignificant effect on financial deepening in Nigeria. It was recommended that Nigerian deposit money banks should employ strategies that will develop the industry, especially investing in technology and Artificial Intelligence (AI), such that most of its banking products and activities will be carried out seamlessly in the comfort of the customers. Furthermore, National Insurance Commission should create a regulatory framework that encourages the establishment of new insurance companies, promote transparency and accountability in the industry, and ensure that insurers have adequate capitalization. Finally, the Nigerian Exchange Group need to do more in getting companies listed.

Effect of Stock Market Development on Economic Growth: Case Study Egypt

Effect of Stock Market Development on Economic Growth: Case Study Egypt

The Impact of Stock Market Development on Economic Growth in Jordan

The strong development of stock markets is reflected in acceleration in the number of IPOs and a very sharp increase in transaction volumes (amounts of securities traded). To understand the effects of stock market development on Jordan’s economy, this research adopted the use of secondary time series info. Based on the descriptive statistics approach adopted, there are specific findings that define the overall objectives of the study. The findings show that the stock growth and private sector credit expansion optimistically contributes to the economic prosperity and development of the Jordanian economy. Moreover, the research findings also indicate that a foreign direct investment, which also influences the country’s stock, has an outcome on the country’s economic development in the long run. Further, the research findings also show that the economic development of Jordan is not affected by the domestic credit awarded to the private sector. However, the findings also show that trade involving stock has a minimal effect on the development and growth of the Jordanian economy. Overall, the research reveals that the FDI, the total stock value of trade, and the nationwide credit to the private sector have an influence on the economic growth of a country.

Does Stock Market Development Promote Economic Growth in Botswana?

This paper examines the empirical linkage between stock market development and sustainable economic growth in Botswana. The paper employs AutoRegression Distributed lags (ARDL)-bounds testing approach and multi-dimensional stock market development proxies to examine this relationship. The paper finds that in the long run, stock market development has a minimal and negative impact on economic growth in Botswana. However, stock market development, especially, market capitalisation development has some short-term impact on economic growth. The paper, however, failed to any impact of stock value traded and the stock value turnover on economic growth. This finding supports the numerous past studies, which have reported negative or inconclusive results on the effects of stock market development on economic growth. The paper, therefore, concludes that there is the need for increasing financial deepening and the reform and diversification of the ownership structure of the capital markets by providing further public and institutional education on the value of stock markets for economic development

Stock market development and low-carbon economy: The role of innovation and renewable energy

Abstract We examine the effect of stock market development (SMD) on the low-carbon economy (LCE). We consider two channels, renewable energy and technological innovation by which this affect occurs. We use the cross-sectional autoregressive distributed lags (CS-ARDL) approach to analyse panel time-series data over the period 1980–2016 for European Union member countries. We demonstrate that SMD impedes LCE in the long run. In contrast, technological innovation (TI) is found to be a driving factor in achieving LCE in the long run. Our results also support the argument that renewable energy consumption and production enhance LCE. Stock market development fosters LCE through the channels of renewable energy and technological innovation. Overall results are robust to the conditions of short- and long-run homogeneity and the cross-sectional dependence in the sample. Our results pose important policy implications.

Stock Market Development and Economic Development in Emerging Economies

This study investigated the effect of stock market development on economic development in developing economies which include Nigeria, South Africa, Angola and Kenya using time panel data between the periods 1986 to 2018. The study employed panel co-integration test, panel regression and granger causality test. We measure stock market development using all share index, market capitalization, foreign portfolio investment and total volume traded while human development index is used as a proxy for economic development. Findings reveal that stock market activities in most African countries have not significantly impacted their economic development except for few African countries which had adequate market regulations. We further find evidence to assert that activities in South African stock market significantly promote economic development in their nation when compared to other countries under investigation. Although the Nigerian stock market activities are also significant in contributing to the economic development process, but in a negative manner while Angola performs less to Nigeria and finally, Kenya stock market activities do not significantly promote economic development in their nation. As such, we recommended that adequate regulation should be implemented introduced as this will help in ascertaining a stable stock market and thereby encouraging the foreign participant to operate in the market.

Da li finansijski razvoj zasnovan na tržištu akcijama podstiče ekonomski rast na tržištima u nastajanju? Novi dokazi iz Nigerije

This study examines the effect of stock market development on economic growth in Nigeria. The study spans the period 1980-2016. It employs the ARDL approach to cointegration. Evidence from the study indicates that stock market development promotes economic growth in the short-run, but in the long-run, the growth impact of stock market development is not significant. The growth impact of market capitalization, value of shares traded, and market turnover ratio are all significant in the short run while that of trade openness is not. Meanwhile, trade openness is the only variable that significantly impacts economic growth in the long-run. The Bounds test for cointegration reveals a long-run relationship among the variables. All the variables, apart from trade openness, are positively correlated with economic growth. The results of this study imply that stock market development plays a major role in economic growth in Nigeria. It is recommended that the regulatory authority enacts policies that will promote liquidity, stability and accountability in the stock market which could possibly perpetuate economic growth in Nigeria.

Effects of Stock Market Development on Economic Growth in Nepal

Financial intermediaries and stock markets are important for the economic growth. The relationship between stock market development and economic growth has been extensively studied in the recent years. This study used analytical research design that involves bi-variate analysis by using simple regression model to examine the relationship between stock market development (measured by size and liquidity of the stock market) and economic growth (measured by logarithm of capital GDP at constant price) in Nepal during the period 2007-2017. Secondary data were collected from the official websites of Ministry of Finance (MoF) and Nepal Stock Exchange (NEPSE). It is assumed that economic growth is the function of stock market development for the purpose of data analysis. Empirical results of this study indicate significant positive relationship between economic growth and stock market development. Moreover, stock market development explained considerable variations in economic growth of Nepal i.e. size of the stock market explained 57.7 percent, and liquidity of the stock market explained 41.6 percent variation in economic growth of Nepal.

Do banking sector and stock market development matter for economic growth?

Financial development as a concept is multifaceted with no clear measurement or definition. Inference via individual proxies may result in an incomplete understanding of the relationship between financial development and economic growth, since sole proxies are unlikely to capture the true capacity of financial development. To address this issue, this paper utilizes a multiple indicators multiple causes (MIMIC) model to create a more complete measure of financial development. In doing this, we treat banking sector and stock market developments as two latent indicators of financial development and use the MIMIC model to predict them which are used as their proxies. Using data from 101 countries over the period 1990–2014, we use the predicted values of the two latent variables as regressors, among other controls, in the growth regression. We find a robust negative relationship between banking sector development and economic growth, whereas the effect of stock market development on economic growth is positive up to a threshold after which the effect becomes negative.

Financial Markets Development and Financing Choice of Firms: New Evidence from Asia

This paper investigates the effects of financial markets development on the financing choice of firms in developing and developed Asian market economies. The panel data regression models were used for a mean total of 6506 non-financial listed companies during 1995–2016 for 12 Asian economics. The estimated econometric models included short-term, long-term and total debt-equity ratios as dependent variables which were regressed on financial markets development variables (such as banking sector development and stock market development indicators) along with macroeconomic variables (such as inflation, GDP growth, FDI and firm-specific variables (such as ratio of total assets to GDP, ratio of dividends to total assets and ratio of net sales to net fixed assets) as control variables. Also, financing choice of firms in developed and developing stock markets was estimated by splitting the sample into subsamples of developing and developed stock markets. The financial development indicators such as domestic credit to private sector by banks and stock market capitalization exhibited contrasting differences between the selected developing and developed Asian economies. The econometric results indicated that the banking sector and stock market development indicators significantly have opposite effects on the financing choice of the selected firms: banking variable is associated with a rise in the debt-equity ratio whereas stock market variable is associated with a fall in leverage ratio. The econometric effects of stock market development on firms financing choices in developing and developed stock markets showed a remarkable divergence. The evidence indicated that the estimated coefficient of the banking sector indicator in the developed stock market subsample was consistently negative for all the three leverage ratios whereas the coefficient in the developing stock market subsample was positive and significant. The important conclusion of the study is that though banking sector and stock market play different roles are however, complementary to each other suggesting that the policymakers should aim to develop banking sector and stock market simultaneously which will help firms to design their optimal financing choices.

Does Anglo-Saxon Corporate Governance Matter for Capitalist Development of Emerging Asian Economy? A Case Study of India

The voluminous body of law and finance literature argues that legal rules shape economic outcomes as far as they support market-based economic activity. This is what suggested in new institutional economics. It is pointed out that legal protections for shareholders will lead to stock market development and ease the financial constraint for corporate growth through capital formation. In the ‘neo-liberal’ era of privatisation and disinvestments in the existing public sector companies, stock market development is given a top priority in the Washington Consensus. It is expected to provide a market mechanism for private corporate capital accumulation (along with public sector disinvestments) and economic growth. The empirical basis of the ‘law matters’ postulate is by and large cross-sectional. The present paper examines this postulate on the basis of the experience of an emerging Asian economy, India, over a time span of 30 years, namely, 1976-2005. This type of time-series study is made possible by the availability of ‘leximetric’ data from the source of Centre for Business Research at the University of Cambridge, UK (hereafter CBR). This study uses the time-series technique of cointegration and vector error correction modelling that takes into account the short-term relationship (temporary impact) and the stability of the adjustment process through which the short-term relationship (if any) culminates into a long-term relationship (permanent impact, if any). It examines the two-way relationship — whether shareholder protection influences stock market development or changes in stock market scenario create an effective pressure on the lawmakers to introduce legal changes or both. It is not true that the nature of a country’s legal infrastructure is fixed as an endowment. Legal infrastructure often interacts with politico-economic developments and may be altered by them. It can be examined by modelling the two-way relationships. This study will add to the existing literature. It recognises the fact that impact of law on economic variables is not instantaneous – it has a path dependency. The path may not be stable; a short-term outcome (significant or not significant) may not lead to a (significant or not significant) long-term outcome. It may so happen that the nature of the short-term outcome is the polar opposite of the long-term outcome. What is observed in this study challenges the so-called conventional wisdom created by the series of studies by La Porta and his colleagues. It is observed that shareholder protection has no long-term favourable effect on stock market development. At best there is no effect (as in stock market trading) and at worst there is negative effect (as in turnover ratio). The avowed objective of improving corporate governance and granting better rights to shareholders is not just for securing the property right of the property-owners. It also promotes the stock market so that the general public will be encouraged to buy shares issued by the corporate sector, and in the process finance their capital formation and growth. However, changes in India’s shareholder protection did not have this effect – the long-term effect on public subscription of shares is either non-existent or negative. The effect on private corporate capital accumulation in both real and relative terms (relative to aggregate national capital formation) is also negative. It is also observed that increasing shareholder protection leads the corporate sector to move away from the issue of shares to debentures in order to finance corporate capital accumulation. This observation goes hand in hand with the observation of a negative effect of shareholder protection on stock market listings. It is also increasingly recognised that corporate governance reforms can be ‘too much of a good thing.’ A perception of excessive regulation can lead to de-listings, as appears to have been the case with the Sarbanes-Oxley Act. This study also examines whether shareholder protection regulations are influenced by changes in the stock market and corporate growth scenario. In the process of growth and evolution of the stock market and the stock-market dependent corporate sector, as demands for changes in the relevant law come up, law makers cater to this need. In India, an apparently surprising result is derived from the present analysis: by and large negative effect of stock market development and corporate capital accumulation on shareholder protection. It seems that when public subscription of shares, stock market trading and market capitalisation are at low ebb, the regulators tighten the belt while in boom condition they relax the rules. To be more specific, as market capitalisation or equivalently the total value of all shares listed in the stock market (as percentage of GDP) declines Indian regulators tend to increase the minority shareholder protection and as the value of all shares traded in the stock exchange (relative to GDP) declines, Indian regulators tend to increase the shareholder protection relating to board and management. As the stock market listing falls, certain aspects of shareholder protection (captured by the ten variable average index) improve. Declining corporate capital accumulation (in real and relative terms) also prompts the law makers to increase shareholder protection in certain spheres. Despite its useful findings, the scope of the present study has some limitations. First of all, it does not deal with the question of law enforcement. The CBR index is based on the laws on the books – not based on the actual implementation of the laws. There is a view that the rule of law is at a very miserable stage in many emerging countries including India because of corruption and other imperfections. According to several studies conducted by the World Bank, the Indian score for the rule of law has been very low. Unfortunately, since no long time series data are currently available on rule of law, it is not possible to include this factor into the present analysis. Furthermore, this factor does not change frequently over the years, thus complicating the possibility to measure its evolution over time.

Bank, Stock Market And Economic Growth: Bangladesh Perspective

The paper empirically investigates the relationship between bank, stock market and economic growth in Bangladesh. In investigating empirical relationship, GDP at the current price, private sector credit given by banks and market capitalization are considered as indicators of economic growth, banks' development and stock market development, respectively. Three possible regression models are estimated to know the relationship between economic growth and financial sector development. The paper shows that bank's credit to the private sector is both positively and robustly contributing to the economic development of the country when bank credit to private sector entered alone in regression as an independent variable. Besides long-term relationship, contemporaneous change in bank's credit to the private sector has profound positive short-run feedback effects to the economic growth. In assessing impact of stock market development on economic growth, no significant long-run relationship is found between stock market development and economic growth in Bangladesh. However, net positive subdued short-term effect of stock market development is evident. But when both bank and equity market jointly enter the model to find out the relationship of both variables with economic growth, a long-run relationship has been evident without statistical significance. It indicates that Bangladeshi financial system comprising both banking sector and stock market jointly is not still a strong promoter of its economic growth, although banking development alone is robustly associated with economic development.Bangladesh therefore needs to enhance the efficiency of banks for increasing credit to the private sector. An immediate initiative is also required to make both equity and debt market as regular sources of finance for the economy. In this perspective, ensuring smooth operation of primary and secondary market, increasing financial literacy among investors, minimizing volatility of the market, expanding issuer base, creating both individual and institutional investors, enhancing efficiency of the brokerage house, adding innovative financial services, initiating knowledge based trading, introducing shelf registration system, creating more professional trustee and ensuring authenticate credit rating from the rating agencies are required to be ensured.

Stock market development and real economic activity in Peru

We explore the causal effect of stock market development on real economic activity in Peru by setting up a simple growth model that underpins long-run identifying restrictions for vector autoregressive models. This allows us to identify stock market shocks and to uncover the dynamic response of real output per capita. Using annual time series data for the period 1965–2013, we find that stock market shocks have had a short-run causal effect on real GDP per capita only after 1991, a result that is consistent with standard Granger causality tests; however, the contribution of stock market shocks to output growth dynamics has been small. Thus, policy actions aimed at further developing the Peruvian stock market may have a positive impact on the dynamics of economic growth.

Stock Market Development and Economic Growth in Nigeria : An Empirical Examination ( 1985 - 2014 )

This study examined the effect of stock market development on Nigeria’s economic growth. The objective of the study was to determine if stock market development significantly impact on the country’s economic growth. Secondary data were employed for the study covering 1985 to 2014. Ordinary Least Square (OLS) econometric technique was used for the time series analysis in which variations in economic growth was regressed on market capitalisation ratio to GDP, value of stock traded ratio to GDP, trade openness and inflation rate. The analysis revealed that stock market has the potentials of growth inducing, but has not contributed meaningfully to Nigerian economic growth, since only 26.5% of variations in economic growth were explained by the stock market development variables. Based on this, the study suggests for an encouragement of more investors in the market, improvement in the settlement system and ensuring investors’ confidence in the market.

Property rights and the stock market-growth nexus

Using threshold estimation techniques, this study examines whether the growth effect of stock market development differs according to the different levels of property rights and minority shareholders protection in a cross-section of 85 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on growth is positive and significant only in jurisdictions where there is high level of property rights protection. Similar effect is discerned in the case of strong minority shareholders protection. Using the market size as a measure of stock market development, the paper also documents a positive growth effect of market size when property rights and minority shareholders protection are strong. However, there is mixed evidence in the low to medium degrees of protection. Further analyses using other broader governance indicators as threshold variables and instrumental variable threshold regressions reaffirm the main findings. The study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which institutional quality can positively shape the impact of stock market on economic growth.

Stock market development and economic growth: Evidence from Mauritius

In the recent past, with the phenomenal growth of equity markets, a burgeoning number of policy makers and researchers began to query about the possible impact that equity market development might have on economic growth. Indeed, an overwhelming number of studies have been carried out worldwide to investigate the links which might exist between stock market development and economic growth. As a result, this has strengthened the view that stock markets around the world play a key role in fueling a powerful and resilient economy. However, most of these studies have focused solely on developed countries and not on developing countries or small island developing economies like Mauritius. As such, since studies analyzing this link in the African region are rather scant, this paper endeavors to scrutinize the relationship between equity market development and economic growth in Mauritius. To this end, this paper analyzes the relationship between stock market development, banking development and economic growth in a unified framework using semi-annual data for the period 1988-2011, through a dynamic Vector Error Correction Model (VECM). The VECM is used extensively to determine the link between stock market development and economic growth while simultaneously allowing identification of any bi-directional and/or uni-directional causality between the variables of interest. Moreover, this model divulges both the direct and the indirect impacts, if any, which stock market development might have on economic growth. Possible determinants of stock market development and the effect of stock market development on the control variables are also analyzed through the VECM. The results suggest that stock market development does play an important role in generating gains in terms of economic growth in the long run in the island. In the short run however, stock market development fails to significantly boost economic growth in Mauritius. Moreover, stock market development is also seen to indirectly stimulate economic growth in the short run, through banking development. Interestingly, banking development is seen to have a positive impact on economic growth, both in the short run and in the long run. This indicates that banking development and stock market development both complement each other. As such, it is believed that further steps have to be taken to promote stock market development in the island, with the aim of boosting both the economy and the banking sector in the long run.

Ethical behavior and trustworthiness in the stock market-growth nexus

While formal institutional quality has been used to explain the finance-growth nexus, the role of social capital has not been fully addressed. The proposition of “better finance, more growth” is important amidst concerns over the erosion of ethics and trust in finance in the aftermath of the 2007/2008 global financial crisis. Using threshold estimation technique, this study examines whether the growth effect of stock market development differs according to the distinct levels of ethical behavior and trustworthiness in a cross-section of 73 jurisdictions during the post-crisis period. The results demonstrate that the impact of stock market liquidity on gross domestic product (GDP) and total factor productivity (TFP) growth is positive and significant only where there is high level of ethical behavior in firms. Similar effect is discerned in the case of strong trustworthiness and confidence. However, there is mixed evidence when formal institutional quality in the form of regulation and supervision of securities exchanges is considered. In terms of policy implications, this study upholds the “better finance, more growth” proposition and contributes to the identification of thresholds above which ethical behavior and trustworthiness can influence positively the relations between stock market development and macroeconomic performance.

Effects of Stock Market Development on Economic Growth: Evidence from Turkey

The studies on the role of stock market development in economic growth have been increasing in recent years. This study examines the relationship between stock market development and economic growth in Turkey during the period 1999-2013 by using Johansen-Juselius cointegration test and Granger causality test. Our empirical results indicate that there is a long run relationship between economic growth and stock market capitalization, total value of stocks traded, turnover ratio of stocks traded and also there is unidirectional causality from stock market capitalization, total value of stocks traded and turnover ratio of stocks traded to economic growth.

Stock market development, banks and firms growth: empirical evidence from Saudi Arabia

This study provides new and updated empirical investigation on the effect of stock market development, banks development and firms growth using Saudi Arabia industrial firm-level data set for the period 1995-2013 and applying GMM, MG techniques model developed for dynamic panels. The econometric results reveal that with more development in the stock market firms that use equity finance heavily grow faster than firms that do not. These findings provide firm-level support for the proposition that the development of the stock market facilitates economic growth in Saudi Arabia. Our results also show that both the stock market and the banking sector development are significant in facilitating the firm's growth in Saudi Arabia. In particular, we find that measures of both market and banking development independently predict firm's growth when entered together in firm growth regressions. The results are consistent with the hypothesis that the stock market and the banking sector development have different effects on small and large firms.

Stock market development and economic growth in Ghana: an ARDL-bounds testing approach

This article examines the relationship between stock market development and sustainable economic growth in Ghana. The study employs the recently developed ARDL-bounds testing approach and multidimensional stock market development proxies to examine this linkage. The article finds that in the long run, stock market developments and capital account liberalization policies have no positive effect on economic growth in Ghana. This finding supports the numerous past studies, which have reported negative or inconclusive results on the effects of stock market development on economic growth. The article, therefore, concludes that it is the increase in credit to the private sector, rather than stock market development that drives the real sector development in Ghana.