Capital market development and its contribution to financial sector development in nigeria- an empirical analysis

Thesis Abstract

Abstract
This study investigates the relationship between capital market development and financial sector development in Nigeria using empirical analysis. The capital market plays a crucial role in mobilizing funds for long-term investments and fostering economic growth. The study employs time series data from 1990 to 2020 and utilizes regression analysis to examine the impact of capital market development indicators, such as market capitalization, trading value, and number of listed companies, on financial sector development indicators, including banking sector assets, credit to the private sector, and financial depth. The results indicate a positive and significant relationship between capital market development and financial sector development in Nigeria. Specifically, an increase in market capitalization, trading value, and the number of listed companies is associated with a rise in banking sector assets, credit to the private sector, and financial depth. This suggests that a well-developed capital market complements the banking sector by providing alternative sources of financing and investment opportunities. Furthermore, the study finds evidence of a two-way relationship between capital market development and financial sector development, indicating that improvements in one sector can positively impact the other. Policy implications of the findings suggest that policymakers should focus on enhancing capital market infrastructure, promoting investor confidence, and implementing regulatory reforms to strengthen the linkages between the capital market and the financial sector. Overall, the study contributes to the existing literature by providing empirical evidence on the importance of capital market development in driving financial sector development in Nigeria. The findings underscore the significance of a well-functioning capital market in supporting economic growth, improving access to finance, and reducing reliance on traditional banking channels. Future research could explore the causal mechanisms underlying the relationship between capital market development and financial sector development, as well as investigate the role of external factors, such as global market conditions and regulatory frameworks, in shaping the dynamics of the Nigerian financial sector.