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Effects of Sectoral Distribution of Commercial Banks’ Loans and Advances to Production on the Performance of Nigeria Stock Exchange

Ugbede Onalo, Mohd Lizam and Ahmad Kaseri
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Ugbede Onalo: Accountancy Department, School of Business Studies, Federal Polytechnic, Idah, Kogi State, Nigeria
Mohd Lizam: Faculty of Technology Management, Universiti Tun Hussein Onn Malaysia
Ahmad Kaseri: Faculty of Technology Management, Universiti Tun Hussein Onn Malaysia

Abstract of Economic, Finance and Management Outlook, 2016, vol. 6, 5

Abstract: Rationally, commercial banks’ lending activities are expected to affect the performance of the capital market. Thus, this study evaluates the effects of sectoral distribution of commercial banks loans and advances to production on the performance of Nigeria Stock Exchange. Secondary data collected from Central Bank of Nigeria statistical bulletin for period 1981 to 2014 was used for this study. This study formulated two models to investigate long run and short run causality effects between dependent and independent variables. Johansen cointegration test was employed to investigate whether variables are cointegrated or not. Having established that variables are cointegrated, this study estimates for each model, short run and long run Causality model using VECM. Regardless of independent variables representing the performance of Nigeria Stock Exchange as specified in Model 1 and Model 2, results commonly established that there is no long run causality running from AFF, MAN and MIQ to MCE and MCT respectively. In other words, in the long run, results from both models established that commercial banks’ loans and advances to agriculture, forestry and fishery, manufacturing and mining and quarrying sub-sectors have influence on the performance of Nigeria Stock Exchange. Essentially, based on the two models however, only commercial banks’ sectoral allocation to agriculture, forestry and fishery has effect on the performance of the capital market in the short run. Since results collectively established both long and short run influence of agriculture, forestry and fishery on the performance of Nigeria Stock Exchange, this study recommends that adequate attention should be given to the development and mechanization of the agricultural sector by Nigeria Government. This recommendation is imperative given obvious evidences that the fall in crude oil price has rendered Nigeria major mono source of revenue unsustainable.

Date: 2016
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