The Causal Influence of Nigeria’s Stock Market Performance On New Issues: An Empirical Examination Of Bhole’s Contentions

Abstract

Bhole (2006) contends that the bulk of recent studies including World Bank publications overwhelmingly, stress the role of the stock market in maximizing speculative returns for investors and corporate operators, while completely sidetracking the vital issue of the extent to which the stock market at the other extreme, also helps the corporate sector in raising fresh capital (New Issues). This study examines consequently, the nature and direction of prevailing causal relationships between Nigeria’s Stock Market annual capitalization and new issues in order to evaluate the extent to which capital market performance empirically promotes corporate issuance of new securities in Nigeria. The unit root and standard Granger Causality tests were executed on employment of published data from the Nigerian Stock Exchange over the period, 1970 – 2011, (42 years). The results indicate stationarity of the time series variables and significant bi directional causality between stock market capitalization and new issues thus, providing strong evidence in support of Bhole’s contentions with respect to Nigerian data. Replication of this study in every market setting is strongly recommended in order to understand country specifics and confirm the extent to which Bhole’s valid theoretical contentions are empirically supported and/or contradicted in each circumstance.

Keywords: Market Capitalization, New Issues, Causality, Stock Market.