Financial Intermediation Role of the Nigerian Capital Market and Performance of Manufacturing Firms

Ikeobi, Nneka Rosemary, Msheliza, Samuel Kaku, Bulus, Hashimu


This paper assesses the role of the Nigerian capital market in the provision of funds to the manufacturing sector, which by its productive nature has the greatest potential to impact on the economic growth and development of a country by examining the relationships between the mobilization and allocation functions of the capital market and the performance of the 24 manufacturing firms included in the study. Using a micro-level approach, firm-level panel data for a 12-year period (2003-2014) were analyzed using a multiple regression model and ordinary least squares estimation technique. Return on equity (ROE) was adopted as the proxy for firm performance, while firms’ share capital and annual market capitalization of the firms were proxies for funds raised and supplied to the firms. Equity market turnover ratio was proxy for capital market allocation efficiency. The results showed that there was a negative and significant relationship between share capital and ROE and a positive and significant relationship between market capitalization and ROE. This implies that the manufacturing firms have not accessed fresh funds from the capital market, even as the market has shown the potential to supply funds to the manufacturing firms during the period under study. The positive but insignificant relationship between market turnover ratio and ROE shows the market was generally illiquid and points to the inefficiency of the market to effectively allocate funds to the manufacturing sector of the economy. The policy implication of these findings is that efforts should be geared at removing all identified impediments to capital market operations especially on the demand side to make it more attractive and accessible to entrepreneurs.

Keywords: Financial Intermediation Role, Nigerian Capital Market, Manufacturing Firms


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