Financial Market Frictions and Stock Market Performance in Nigeria
Abstract
Objectives: This study examined the effect of financial market frictions on stock market performance in Nigeria over the period 1995 to 2023. The specific objectives were to find out whether relevant financial market frictions variables such as transaction cost (TCOST), agency costs (AGCOST), regulation (REGQ), market liquidity (MLIQ) and capital gain tax (CGT) significantly affect stock market performance. Prior Work: While financial market frictions has been widely investigated in advanced economies, but to the best of the researchers’ ability, scanty studies exists on financial market frictions in relation to stock market performance in Nigeria. This study centers on market frictions by extending its application to stock market activities in the Nigeria Exchange Limited (NGX). Approach: The longitudinal/expo facto research design was adopted and analyzed using the dynamic least square econometric technique. Results: The findings revealed that transaction cost (TCOST) and market liquidity (MLIQ) has significant positive impact on stock market performance; agency costs (AGCOST) and regulation (REGQ) has significant negative relationship with stock market performance; while those of capital gain tax (CGT) has a weak positive impact on stock market performance. Implications: The study provides insight to board of directors on how to ensure that the interest of agents working under them are not completely sidelined; and also, firms should focus attention on ways of increasing earnings and improving quality of assets and market value, so that returns on disposal of assets will have meaningful impact on the company’s overall performance. Value: It provided investors a clear-cut understanding on how to effectively trade and diversify their portfolio investment in a market that is constantly impounded by insider trading and market manipulations, which often result in assets price distortions and general market fluctuations.
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