Year: 2026 | Month: March | Volume 71 | Issue 1
Governance Quality and Stock Market Development in Africa: A Panel ARDL Approach
Charles O. Manasseh1
Chine Sp Logan
Obiageli G. Akamobi
Kenechukwu K. Ede
Oghenefejiro M. Ejime
Emmanuel Eleje5 and Nkechi C. Nkwonta
DOI:10.46852/0424-2513.1.2026.2
Abstract:
This study examines the impact of regulatory quality, government effectiveness, and the rule of law on stock market performance in selected African countries over the period 1991-2024. The analysis employs a panel Autoregressive Distributed Lag (ARDL) model to capture both short-run dynamics and long-run equilibrium relationships, integrating governance indicators with key macroeconomic variables such as gross fixed capital formation, inflation, exchange rate, and market liquidity. The long-run results reveal that stock market development exhibits strong persistence, while weak regulatory frameworks and institutional inefficiencies significantly constrain market growth and investor confidence. In contrast, gross fixed capital formation and exchange rate stability positively influence market performance, highlighting the importance of investment and macroeconomic stability. Inflation exerts a mild negative effect, whereas liquidity contributes marginally over time. The short-run findings indicate a significant and rapid adjustment toward long-run equilibrium, although governance indicators show limited immediate effects, suggesting that institutional reforms yield results primarily in the long term. Country-specific estimates further reveal substantial heterogeneity in governance effectiveness and market responses across African economies. Overall, the findings underscore that strengthening regulatory quality, improving institutional effectiveness, and maintaining macroeconomic stability are critical for fostering resilient and sustainable stock market development in Africa. The study contributes to the literature by providing a dynamic, multi-country analysis that integrates governance dimensions into stock market modelling and offers policy-relevant insights for financial sector development.
Highlights
- Governance quality significantly influences stock market development in Africa.
- Weak institutions hinder growth, while investment and exchange stability support markets.
- Long-run effects dominate; short-run governance impacts are limited.
- Policy focus on regulatory reforms and macroeconomic stability is essential.
© This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited
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