EFFECT OF FOREIGN INVESTMENT INFLOWS ON CAPITAL MARKET PERFORMANCE IN NIGERIA

Abstract

This study explores the relevance of disaggregate financial information disclosure suggested by standard setters in promoting decision usefulness of financial information by exploring the effect of foreign investment inflows on capital market performance in Nigeria. The study adopted ex-post facto research design using quarterly time series data from 2005Q1 – 2022Q4 by employing autoregressive distributed lag (ARDL) model in the data analysis technique and determined the long-run and short-run relationship between the variables of the study. The findings of the study revealed that equity capital, loans and currency deposits have significant positive effect on capital market performance measured with market capitalization, while money market instrument and trade credit have negative significant effect. However, other capital, other equity, bond and other claims have no significant effect on capital market performance in Nigeria. This study provide insight that effective performance evaluation, decision making and transparency in the public and private sector required disaggregate financial information disclosure. Previous studies adopted aggregate approach in investigating capital inflows performance, policy decision and its implications without considering various heterogeneity of the components of these inflows. This overblows performance result and policy decision impacts. This study considered various heterogeneity of the different components of the foreign investment financial inflows in the research. The study conclude that disaggregate financial information disclosure is helpful in performance evaluation, decision usefulness and policy process. The study recommends that for better performance evaluation, policy and decision making by the decision makers, disaggregate disclosure of financial information is necessary. Foreign equity ownership should be encouraged, reserve assets from currency and deposits to drive capital market performance and overall development of the Nigeria financial system. Financial system reform should be holistic without excluding any component elements of the financial system while foreign loan or debt should be channelled toward productive sector.