Proceedings of The 5th International Conference on Business, Management and Economics
Unraveling the Impact of Institutions on Stock Market Performance in Nigeria
Quality institutions exemplified by better governance environments can leverage shareholders’ returns by reducing transaction and agency costs. Thus improvement in financial market development is underscored on the institutions which govern the process of exchange. In this study covering 1996 to 2019, and using the Ordinary Least Squares technique, six stock market performance proxies (including all share index, market capitalization (equities only), market capitalization (total), number of deals (equities), number of deals (total) and total value of stocks traded) were each regressed on institutions, proxied by the World Governance indicators including control of corruption, government effectiveness, political stability and absence of violence/terrorism, regulatory quality, rule of law, and voice and accountability, while controlling for macroeconomic factors. The findings indicate that control of corruption and government effectiveness have a direct impact on stock market performance, with the former being significant for all stock market performance indicators and the latter being significant for all share index. Political stability and absence of violence/terrorism, regulatory quality, rule of law and voice and accountability have a negative impact on stock market performance. Interest rate was found to have an indirect impact on stock market performance but not statistically significant. Real income has a positive and statistically significant impact on the performance of the stock market. The impact of macroeconomic instability on stock market performance was unraveled to be negative and statistically significant. The study recommended policies that enhance institutional structures that improve the performance of the stock market.
Keywords: institutions; governance; macroeconomic factors; stock market performance; Nigeria.