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Financial Deepening and Performance of Quoted Small and Medium Enterprises in Nigeria

Ihejirika, Peters O, Obieche, Precious N., and Anyanwu, G. I.

Abstract

This study assessed the effect of financial deepening on the performance of quoted small and medium scale enterprises in Nigeria between 2008 and 2024. The model captured financial deepening in variables: credit to private sector to GDP ratio (CPS/GDP), broad money supply to GDP ratio (M3/GDP), market capitalization to GDP ratio (MKT/GDP), and value of shares traded to GDP ratio (VST/GDP), and SMEs performance measured with earnings per share . Panel data were collected from the CBN Statistical Bulletin (2024) and the Nigerian Exchange Group (2024). Panel estimation techniques were employed. Diagnostic tests showed the presence of significant firm-specific heterogeneity, thereby justifying the use of the fixed effects estimator. Results indicate that all the financial deepening variables were statistically insignificant at 5% level of significance. The interactive model showed that MKTGDP, M3GDP, CPSGDP, and VSTGDP displayed small positive effects on baseline firms, but none are significant. These results reveal substantial heterogeneity in the impact of all the variables on EPS and suggests that the effect of financial deepening variables on SME performance varies across firms. It concluded that financial deepening as currently structured in Nigeria, does not automatically translate into improved financial performance for quoted SMEs. The study recommends among others that, relevant authorities should formulate policies to encourage financial deepening measures that prioritize SMEs with viable business models with clear demonstration of feasible growth potential

Keywords

Financial deepeningEarnings per shareSMEsInteractionPanel analysis.

References

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