Accounting Values and Capital Market Flow: Role of Share Capital and Retained Earnings in Nigeria Banking Sector
Abstract
The study investigates the impact of ordinary share capital and retained earnings on the liquidity of the Nigerian capital market, focusing on 13 banks listed on the Nigerian Exchange Group over the period 2003 to 2023. Using a least squares regression approach on 21 observations, the analysis reveals that ordinary share capital has a positive and statistically significant effect on market liquidity (coefficient = 0.1805, p = 0.0253), while retained earnings negatively and significantly influence liquidity (coefficient = -0.2725, p = 0.0322). The model explains approximately 32.6% of the variation in liquidity (R² = 0.3263), underscoring the importance of equity financing in fostering active capital market flows in Nigeria’s banking sector. The findings suggest that banks with higher ordinary share capital tend to enjoy greater liquidity, attracting investor confidence and promoting trading activity. Conversely, excessive reliance on retained earnings may dampen liquidity by limiting external shareholder participation. These results have important implications for bank management and policymakers, highlighting the need for a balanced capital structure that optimizes both internal funds and external equity to enhance market efficiency and growth. The study contributes to the understanding of how accounting values influence capital market dynamics in emerging economies like Nigeria.
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