Governance and Market Capitalization in the Nigerian Capital Market

Abstract

This study examined the relationship between governance and market capitalization in the Nigerian capital market for the period 1991 – 2021. Governance was considered from the perspectives of voice and accountability, political stability and government effectiveness. Data for the study were generated from the World Bank (Worldwide Governance Indicators) and Central Bank of Nigeria (CBN) statistical bulletin for 2021. These collected data, with the aid of E-views package, were subjected to descriptive analysis, unit root test, ARDL estimations, bounds co-integration test and diagnostic tests. Majorly, results revealed that political stability has a significant positive effect on market capitalization while voice and accountability and governance effectiveness have negative insignificant effects on market capitalization in the short term. It was also revealed that governance has a long-run equilibrium relationship with market capitalization but the speed of adjustment in the long run in the event of disequilibrium is about 2.16% per annum. Diagnostic test results showed no presence of autocorrelation and heteroscedasticity while the errors were normally distributed. The study concluded that governance has an insignificant relationship with market capitalization in the Nigerian capital market, which led to the recommendation that existing law enforcement agencies should be strengthened further with clear-cut mandates to ensure that public office holders who goof in the line of duty are made to pay dearly for it, as such enhancing accountability.

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