Data Sources, Time Span and Expected Signs of Variables

According to Remenyi et al (2005), within business and management studies, secondary data are mainly used in case study and survey-type research. In line with this, the present researcher collected secondary data to achieve the research goals. The research utilised secondary annual time series for the variables identified above. The data set was from the following sources.

 Central Bank of Nigeria (CBN) statistical bulletins

 Nigerian Stock Exchange (NSE)

 Capital Market of Nigeria database

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Some of the data set utilised in this study was not directly available and had to be derived/represented by proxies, utilising techniques proposed in the literature and standard conversion procedures. For example, the data set in some cases had to be deflated to remove the effect of inflation and, to address this problem, the procedure defined by Levine et al (2000) was used and is illustrated, using as an example the stock market capitalisation ratio below.

When computing the average real stock market capitalisation (MCAP) in year t and t+1, this average was divided by real GDP measured in year t, with the end-of-year CPI the value for December. The formula is the following:

Advantages and Disadvantages of Using Secondary Data

Compared with the limitations of primary data, using secondary data can not only save on the resources (and, in particular, time) needed for collecting data but also achieve a longer time span (Ghauri et al 1995). In addition, secondary data are likely to be of higher quality, especially when collected by surveys from governments or institutions (Stewart and Kamins 1993).

Secondary data can generally be divided into three main types: documentary, survey and compiled data (Saunders et al 2003). There are a number of disadvantages of using secondary data. One of these is the suitability of the data, since primary data are new data collected with a specific research

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purpose in mind and can usually answer the research question and/or objective straightforwardly. Secondary data, however, have always been organised and collected for some other purpose beforehand. Therefore, they can seldom be used to answer the research question(s) directly but can still provide useful sources for investigation and analysis (Denscombe 1998).

Stewart and Kamins (1993) argue that an advantage of using secondary data is that the data already exists. Therefore, it merely needs to be evaluated for suitability prior to use. Investigating the suitability of secondary data is worthwhile in these circumstances, since this important step will save time, especially when there are several different data sources (Saunders et al 2003). Apart from concerns of the data’s suitability, their accessibility and availability is also worth considering. It is difficult and costly to gain access to data collected for commercial reasons and issues of confidentiality may also restrict access to data. The research was fortunate that the available secondary data were suitable for answering the research question.

Reliability and Validity of Data:

Saunders et al (2007) pointed out that there are two major threats to the credibility of research: data reliability and validity. The main issue of reliability in the context of this research will arise when information is obtained from an undependable or untrustworthy source. To control the incidence of unreliability of data, the data set used in this analysis was obtained from the Central Bank of Nigeria (CBN) and the Nigeria Stock Exchange (NSE). Both of these organisations are the primary institutions which generate the data required for

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the research and any other source receives information on these variables from these institutions. The researcher is aware that, as in most developing countries, Nigerian data are still subject to some sources of error, which it can be argued exists in some degree in any data collected.

Data validity and reliability are a crucial determinant of the credibility of research. Where research is conducted at a national or regional level, secondary data are the most appropriate sources. Threats to validity in the context of this research would include the soundness of the specifications of the models and the methods, as well as the nature of the data used in the analysis. These problems can be solved to some extent by undertaking diagnostic tests, as outlined later in this chapter, and to verify that the suitable models and methods are chosen to suit the nature of the data and to avoid potential threats to the validity of the research findings. This has been demonstrated in the literature review, as well as in the discussions of research philosophy and methods.

The Time Span of the Study

The Nigerian stock market came into existence in 1960 and, during most the first two decades of its existence, it was under military rule, where the government adopted a series of nationalist policies which were not conducive to private sector growth. Although foreigners were allowed to invest in the country, the level of participation as well as capital repatriation was restricted. With the advent of democracy in 1978, there was a change in government from military to civilian regime. The 1980s marked an attempt to shift from an overreliance on

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the government because the government just did not have the funds to finance these projects and the few existing government businesses were badly run.

Since then, the Nigerian economy has undergone a series of reforms by the civilian government, with a view to making the economy more market friendly. The different liberalisation policies, which include the structural adjustment programme (SAP) recommended by the international monetary fund (IMF), have been implemented by successive governments in the countries since then, to stimulate economic growth and encourage the stock market in Nigeria, making this an interesting time period to study the development of the Nigerian stock market and its impact on economic growth.

The year 1999 was another defining moment for Nigeria, with the return of a civilian regime, after over ten years of military rule, intent on returning the Nigeria to a market economy. The policies implemented include a privatisation programme of government owned companies, thereby improving and increasing the quality and quantity of securities available on the market. This sparked renewed interest in the stock market and increased activity on the market. This is a great time period to examine, as it provides insight into the contribution of the stock market to growth before, during and after the recent privatisation programme.

Also, the traditional time-series approach to studying this relationship between the stock market and economic growth, as identified in the literature review, is dependent on at least 25 observations for the analysis to be statistically

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significant. The period 1980 to 2007, which is the period of this study, has more than this and allows for the analysis to be credible, while maintaining a reasonably good degree of freedom in the model. The available number of observations of data, however, did not allow for a statistically significant two- period study (before and after privatisation). The summary of the variables used in the analysis, what they proxy, the expected signs and the researchers that have used them in the past are outlined in table 5.3.

Table 5.3: Description of the variables in the model and their expected signs

Symbol Variable What it proxies Expected

signs

Authors who have used them

Y Growth rate of

per capita GDP

Economic growth NA Enisan and Olufisayo (2009)

MC Market

capitalization to GDP

size of stock market + Enisan and Olufisayo (2009); Bahadur and Neupane (2006); Herriott (2001)

VTG Value traded to GDP

Liquidity of the stock market relative to the whole economy

+ Enisan and Olufisayo (2009); Bahadur and Neupane (2006); Herriott (2001) VTM value traded to Market capitalization

liquidity of the stock market relative to stock market size

+ Bahadur and Neupane (2006); Herriott (2001). GC Gross capital formation (GFCF) GDP

Total capital stock + Ang (2009)

GE Government expenditure to GDP ratio Government sector impact/ macroeconomic stability

+ Ghimire and Giorgioni (2009); Levine and Zervos (1996)

BL Loan-to-deposit ratio of banks

Banking sector credit activities

+ Levine et. Al. (2000); Kar and Pentecost (2000)

POL Dummy variable for political instability

Political instability - Levine and Zervos (1996)

XM Total export and import to GDP

Degree of openness + Enisan and Olufisayo (2009); Ghimire and Giorgioni (2009)

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