Institutional Quality And Stock Market Development In Nigeria - An Application Of The Ardl Approach

ABSTRACT

This study was motivated by the growing concern on the impact of Institutional Quality on

economic outcomes. The study focused specifically on the Nigerian Stock Market due to its critical

role in the economy as a vehicle for efficient resource allocation. The Autoregressive Distributed

Lag (ARDL) bounds testing procedure is employed using data from 1985 to 2012. The study used

the ARDL model to ascertain the long-run impact of institutional quality on stock market

development in Nigeria. The results from Empirical analysis of level of corruption, democratic

accountability and bureaucratic quality exert significant impacts on stock market development as

measured by market capitalisation ratio. Also, Banking sector development and stock market

liquidity contribute significantly to stock market development. Moreover, a unidirectional causality

runs from institutional quality to stock market development. The study therefore, recommends that

the fight against corruption should be intensified while the market administrative and regulatory

qualities should be enhanced for a sustainable stock market development in Nigeria.

Keywords: Institutional Quality, Stock market, development, Market capitalisation ratio,

corruption, democratic accountability, bureaucratic quality.

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