An Evaluation of Capital Market Reform and Its Impact on the Performance of the Nigerian Stock Exchange




Economic reforms, particularly what became known as the Structural Adjustment Programme (SAP), have almost always been implemented in response to national financial distress that can be traced back to macroeconomic distortions, according to the literature (World Bank 1986). While such distress is most often manifested as severe economic deterioration (stagflation and massive external debt), distortions can also be seen in the pursuit of unsustainable fiscal, monetary, and exchange rate policies, as well as widespread government intervention in businesses that are best managed by the private sector. Several analysts believe that policy pursuits that depart from free-market pricing policies are linked to economic maladjustment (Chiber, et al., 1986; Ray, 1986). Economic reforms are thus seen as pursuits of fiscal reforms and market liberalizations, with the government limited to providing the right enabling environment for private sector-led growth, with a focus on extensive privatization of state-owned enterprises as well as liberalization of financial and foreign exchange markets.

The literature agrees that the heart of economic reform is the need to address a two-fold task: restructuring or correcting policy incentives, as well as restructuring key implementation institutions. Financial sector reforms are a subset of economic reforms that primarily focus on reorganizing financial sector institutions (regulators and operators) through institutional and policy changes. Since the start of SAP, there have been other economic reforms. The first is the 1986–1993 financial system reforms, which resulted in deregulation of the banking industry, which had previously been dominated by indigenized banks, resulting in over 60% Federal and State government stakes. During this time, both the federal and state governments made significant investments in industry, particularly in the agro-and allied sectors, electricity, and petroleum refining. In addition to credit reforms, interest rate and foreign exchange policy reforms occurred during this period. The second phase began in late 1993 and lasted until 1998 when regulations were reintroduced. There was a lot of distress in the financial sector during this time, which necessitated another round of reforms to deal with it. The third phase began in 1999 when civilian democracy was restored, and the financial sectors were liberalized again, along with the implementation of distress resolution programs. The fourth phase, which began in 2004 and is still ongoing, is guided by the Nigerian monetary authorities, who claim that the financial system is plagued by structural and operational flaws and that their catalytic role in promoting private-sector-led growth could be enhanced further through more pragmatic reform.

Nigeria’s capital market is a vital part of the country’s financial system. The financial market, according to Anyanwu (1993), is a complex mechanism made up of procedures, instruments, and institutions through which efficient economic units (i.e. government, corporate bodies) and surplus economic units (i.e. suppliers of funds/savings) are brought together to transact business. According to Nzotta (2004), the capital market is a platform for lenders to offer long-term money in return for borrowers’ financial assets or exchange by holders of existing negotiable debt instruments. Despite the presence of capital market research (Arestis, Demetriades, and Luintel, 2001; Fase and Abma, 2003; Iimi, 2003; Khan, Qayyum, and Sheikh, 2003), there is little information on financial reforms and capital market growth in Nigeria. Hence, this study would serve as existing literature.


Due to the global economic collapse, the performance of the Nigerian capital market is currently at a low ebb. Despite dedicated efforts to power the Nigerian economy through various reforms – the Nigerian Capital Market – to achieve accelerated grass-roots economic development, the market appears to be constrained by several factors that impede its performance, rate of national economic growth, and development.

The Nigerian Stock Exchange would have performed better if not for issues such as the high cost of raising funds, low awareness among Nigerians of the importance of investing in the stock market, stringent conditions for listing companies, stockbroker fraud, long periods of clearing/verification of certificates, overtrading, insecurity of invested funds, and so on. The impact of these reforms, particularly the electronic reforms, on the performance of the Nigerian capital market will be examined.


The overall goal of the research is to evaluate the capital market reform and its impact on the performance of the Nigerian stock exchange and find out about the relationship between the stock exchange and the capital market.


The following null hypotheses are tested in this study:

H01: Capital market reform does not have a significant impact on the performance of the Nigerian stock exchange.

H02: There is no relationship between the stock exchange and the capital market


The study’s findings will be useful to Nigerian policymakers since they will be used in the decision-making process. As a result, it will assist the government in formulating new policies.

The study’s findings will be used by the operators to identify their flaws and what the public and government expect of them. The research will act as a guide for operators in determining the need to maximize reform potential to produce more money for socio-economic growth and development.

Finally, the research will be used as a benchmark or reference for future research on the same and similar issues.


The scope of this research will be confined to the Nigerian stock exchange’s (NSE) regulatory function in the capital market, with a focus on the Nigerian stock exchange. This is because the (NSE) is a capital market vegetable organ.


It is natural for humans to experience problems or difficulties in achieving specific goals. As a result, we encountered several challenges in completing this task. The issue may be traced back to a lack of funds to go to other firms for proper information gathering, which may have ringed the project. There are also issues with contacting some key individuals within the company who may offer the financial information required for the research. Another issue was that management was not permitted to reveal any further information.


capital market reform: The capital market is a market where buyers and sellers engage in the trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.

Nigerian stock exchange: An organized and regulated financial market where stock brokers and traders can buy and sell securities, such as shares of stock, bonds, and other financial instruments. The Nigerian Stock Exchange (NSE) was established in 1960 as the Lagos Stock Exchange.




Our focus in this chapter is to critically examine relevant literature that would assist in explaining the research problem and recognize the efforts of scholars who have previously contributed immensely to similar research. The chapter intends to deepen the understanding of the study and close the perceived gaps.

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