Analysis of Factors affecting The Growth of Capital Markets: A Case of The Lusaka Securities Exchange
DOI:
https://doi.org/10.59413/ajocs/v6.i3.7Keywords:
Capital Markets, Stock Market Liquidity, Foreign Direct Investments, Lusaka Securities Exchange, Regression Analysis, Capital Market GrowthAbstract
This study investigates the key factors affecting the growth of Capital Markets in Zambia, with a specific focus on the Lusaka Securities Exchange (LuSE). The research aimed to achieve three main objectives: to determine the effect of Stock Market Liquidity on Capital Market growth, to assess the impact of Foreign Direct Investment (FDI), and to explore the perceptions of market participants regarding the challenges and drivers of LuSE’s growth. Recognized as a vital component of Zambia’s economic development, LuSE facilitates capital raising and investment opportunities. However, between 1995 and 2023, the exchange experienced notable fluctuations in both the number of listed companies and its market capitalization, raising concerns about its stability and growth trajectory. To address existing knowledge gaps, the study adopted a mixed-methods approach. Quantitative data from 1995 to 2023 were analyzed using the Vector Autoregressive (VAR) model through STATA 15.0, focusing on the dynamic effects of Stock Market Liquidity and FDI. The analysis found that Stock Market Liquidity had no significant short-run effect on market capitalization, with p-values of 0.379 and 0.998. Conversely, FDI showed a significant positive influence in the second lag (coefficient = 0.2194731, p = 0.043), indicating a delayed yet meaningful contribution to Capital Market growth. The qualitative component, based on structured questionnaires from randomly selected participants, revealed investor education and regulatory inefficiencies as major concerns. Specifically, 35.7% of respondents rated investor education poorly, while 57.2% believed that this lack led to poor investment decisions. Over half of the participants criticized the regulatory framework for being unclear and rigid. Although most respondents did not view limited product offerings as an immediate barrier, some acknowledged the long-term importance of market diversification. The study concludes with strategic policy recommendations to support LuSE's development and enhance Zambia's overall financial market performance.
Downloads
References
Abdelbaki, H.H. (2013). Causality Relationship Between Macroeconomic Variables and Stock Market Development: Evidence from Bahrain. The International Journal of Business and Finance Research. 2013;7(1):69-84.
Aduda, J., Masila, M.J. and Onsongo, N. E. (2012). The Determinants of Stock Market Development: The case for the Nairobi Stock Exchange. International Journal of Humanities and Social SciencesVol.2.9, pp. 214-227.
Akinlo, A. and Egbetunde, I. (2010). Financial Development and Economic Growth; The Experience of 10 Sub Saharan African Countries Revisited. The Review of Finance and Banking, 2, 17-28.
Akintoye, A. (2015). Developing Theoretical and Conceptual Frameworks, In Theoretical and Conceptual Frameworks: Mandatory Ingredients of a Quality Research, International Journal of Scientific Research, Vol. 7 | Issue-1 | January-2018 | Print ISSN No 2277 – 8179
Alzoubi, M. (2021). Bank Capital Adequacy: The Impact Of Fundamental And Regulatory Factors In A Developing Country. [Online] Available at: https://www.researchgate.net/publication/361838898_Bank_Capital_Adequacy_The_Impact_of_Fundamental_and_Regulatory_Factors_in_a_Developing_Country [Accessed 2025]. DOI: https://doi.org/10.19030/jabr.v37i6.10395
Arslan, M. and Alqatan, A. (2020). Role of Institutions in Shaping Corporate Governance System: Evidence from Emerging Economy. [Online] Available at: https://www.sciencedirect.com/science/article/pii/S2405844020303650 [Accessed 2025]. DOI: https://doi.org/10.1016/j.heliyon.2020.e03520
Ayadi, O. F. and Williams, J. (2023). Stock Market Development and Capital Formation in Selected African Economies. Journal of Money and Business, 3(2), 125–136. DOI: https://doi.org/10.1108/JMB-05-2022-0023
Ben N.S., Ghazouani S. and Omran M. (2007). The determinants of stock market development in the Middle Eastern and North African region. Managerial Finance. 33(7):477-489. DOI: https://doi.org/10.1108/03074350710753753
Berger, A. N. and Bouwman, C. (2012). How Does Capital Affect Bank Performance During Financial Crises?. [Online] Available at: https://www.researchgate.net/publication/228252838 [Accessed 2025]. DOI: https://doi.org/10.2139/ssrn.1739089
Bhasin, S. (2017). Institutional Theory: The Logic of Institutions. [Online] Available at: https://www.researchgate.net/publication/316474609_Institutional_theory_the_logic_of_institutions [Accessed 2025].
Brandao, D. T., Levine, R. E. and Schmukler, S. L. (2015). Capital Market Financing, Firm Growth, and Firm Size Distribution, Policy Research Working Paper Series 7353, The World Bank.
Carvajal , A. and Elliott , J. (2009). The Challenge of Enforcement in Securities Markets: Mission Impossible? [Online] https://www.imf.org/external/pubs/ft/wp/2009/wp09168.pdf (Accessed: 27 August 2024)
CEIC Data (2015). Zambia Lusaka Stock Exchange (LuSE): Market Capitalization: ZMW. [Online] Available at: https://www.ceicdata.com/en/zambia/lusaka-stock-exchange-market-capitalization/lusaka-stock-exchange-luse-market-capitalization-zmw [Accessed 2025].
Chiad, F. and Hamoudi, H.S. (2022). Macroeconomic Determinants of Stock Market Development: Evidence from Panel Data Analysis. MPRA Paper No. 113797 [Online] https://mpra.ub.uni-muenchen.de/113797/ (Accessed: 29 October 2024) DOI: https://doi.org/10.9734/bpi/niebm/v4/2819E
Chola, J. (2019). Factors Affecting the Utilization of Capital Markets in Zambia. Lusaka, Zambia: The University of Zambia.
Choudhry, T., Papadimitriou, F. and Shabi, S. (2016). Stock Market Volatility and Business Cycle: Evidence from linear and nonlinear causality tests. Journal of Banking and Finance, Vol 66 DOI: https://doi.org/10.1016/j.jbankfin.2016.02.005
Claessens, S. (2019). Fragmentation in global financial markets: good or bad for financial stability. Monetary and Economic Department, Bank for International Settlements [Online] https://www.bis.org/publ/work815.pdf (Accessed: 12 October 2024)
Cleave, P. (2023). Structured Or Semi-Structured Questionnaire?. Smart Survey [Online] https://www.smartsurvey.co.uk/blog/structured-or-semi-structured-questionnaire (Accessed: 12 October 2024)
Conaty, F. (2021). Abduction as a Methodological Approach to Case Study Research in Management Accounting — An Illustrative Case. Accounting, Finance and Governance Review, 27 DOI: https://doi.org/10.52399/001c.22171
Cooper, D. R. and Schindler, P. S. (2014). Business Research Methods (12th ed.). New York: McGraw-Hill Education.
Creswell, J. W. (2014). Research Design: Qualitative, Quantitative and Mixed Methods Approaches (4th ed.). Thousand Oaks, CA: Sage.
Cumming, D.J. and Macintosh, J.G. (2006). Crowding Out Private Equity: Canadian Evidence. Journal of Business Venturing, Vol. 21, pp. 569-609. [Online] SSRN: https://ssrn.com/abstract=323821 (Accessed: 2 October 2024) DOI: https://doi.org/10.1016/j.jbusvent.2005.06.002
Daka, C. (2019). An empirical Study of the Performance of the Lusaka securities exchange (LuSE) and its Impact on the Zambian Economy. Lusaka, Zambia: The University of Zambia.
Degryse, H., Lambert, T. and Schwienbacher, A. (2018). The Political Economy of Financial Systems: Evidence from Suffrage Reforms in the last two Centuries. The Economic Journal, 128(611), 1433–1475. DOI: https://doi.org/10.1111/ecoj.12459
Dusuki, A. W. (2010). Do Equity-based Sukuk Structures in Islamic Capital Markets Manifest the Objectives of Shariah? Journal of Financial Services Marketing, 15(3), 203-214. DOI: https://doi.org/10.1057/fsm.2010.17
Federal Reserve Bank of St. Luis, (2022). Understanding Capital Markets. [Online] https://youtu.be/n7st0D0HUAQ (Accessed: 6 May 2024)
Fernando, J., Silberstein, S. and Rathburn, P. (2025). Market Capitalization: What It Means for Investors. [Online] Available at: https://www.investopedia.com/terms/m/marketcapitalization.asp [Accessed 2025].
Gbadebo, A. D. (2024). Theories of Financial Intermediation: Evaluation and Empirical Relevance. Department of Accounting Science, DOI: https://doi.org/10.55908/sdgs.v12i9.3950
Walter Sisulu University, South Africa. Available online at https://www.scienceopen.com/hosted-document? (Accessed February 2025)
Hayes, A. (2023). Capital Markes: What They Are and How They Work. [Online] https://www.investopedia.com/terms/c/capitalmarkets.asp (Accessed: 3 May 2024)
Hayes, A., Catalano, T. J. and Perez, Y. (2024). Understanding Liquidity and How to Measure It. [Online] Available at: https://www.investopedia.com/terms/l/liquidity.asp [Accessed 2025].
Hayes, A., Kindness, D. and Velasquez, V. (2024). What the Capital Adequacy Ratio (CAR) Measures, With Formula. [Online] Available at: https://www.investopedia.com/terms/c/capitaladequacyratio.asp [Accessed 2025].
International Business Machines Corporation, IBM. (2023). IBM SPSS Software. [Online] https://www.ibm.com/spss (Accessed: 13 October 2024)
Islam, M.T., Kabir, R. and Nisha, M. (2022). Data Analysis with Stata: A Comprehensive Guide for Data Analysis and Interpretation of Outputs. Dhaka, Bangladesh: Altaf Publications.
James, M., Kvilhaug, S. and Chen, J. (2024). Financial Intermediary: What It Means, How It Works, Examples. [Online] Available at: https://www.investopedia.com/terms/f/financialintermediary.asp [Accessed 2025].
Kambandu, M. (2021). Zambia's Securities Exchange Commission Launches a Regulatory Sandbox. [Online] https://www.uncdf.org/article/6614/zambias-securities-exchange-commission-launches-a-regulatory-sandbox (Accessed: 25 May 2024)
Kawimbe, S. (2022). Factors Affecting Listing of Small and Medium Enterprises on LuSE Alternative Investment Market in Zambia: A Case of Lusaka Business District. [Online] Available at: https://www.researchgate.net/publication/364503443_Factors_Affecting_Listing_of_Small_and_Medium_Enterprises_on_LuSE_Alternative_Investment_Market_in_Zambia_A_Case_of_Lusaka_Business_District [Accessed 2025].
Kim, O. (2020). Western-style Capital Market Reforms in Russia: Implications for Market Efficiency and Firms’ Financing Decisions. Risk Governance and Control: Financial Markets and Institutions, 10(3), 62–74. DOI: https://doi.org/10.22495/rgcv10i3p5
Kumar, R. (2016). Efficient Capital Markets and Its Implications, In Valuation: Thoeries and Concepts, pp. 713-91 DOI: https://doi.org/10.1016/B978-0-12-802303-7.00003-6
Levine, R., Brandao, T. and Schmukler, S. (2015). Capital Market Önancing, Firm Growth, and Firm Size Distribution. Policy Research Working Paper Series 7353, The World Bank. DOI: https://doi.org/10.1596/1813-9450-7353
Lungu, L. (2020). LuSE: Roles and Functions of the Securities Exchange. Business Development Department, Lusaka, LuSE.
Lusaka Securities Exchange, LuSE (2025). About the LuSE. [Online] Available at: https://www.luse.co.zm/about-us/ [Accessed 2025].
Lusaka Securities Exchange, LuSE. (2021). LuSE Handbook.
Madura, J. (2020). Financial Markets and Institutions. Ed. 13, Florida,Atlantic University Cengage Learning.
Majaski, C., Smith, A. and Logan, M. (2024). Money Markets vs. Capital Markets: What's the Difference?. [Online] Available at: https://www.investopedia.com/articles/investing/052313/financial-markets-capital-vs-money-markets.asp [Accessed 2025].
McLeod, S. (2023). Likert Scale Questionnaire: Examples and Analysis. [Online] https://www.simplypsychology.org/likert-scale.html (Accessed: 3 October 2024)
Middleton, C.A.J., Fifield, S. and Power, D. (2008). An Investigation of the Benefits of Portfolio Investment in Central and Eastern European Stock Markets. Vol. 22 10.1016/j.ribaf.2007.04.001 Research in International Business and Finance. DOI: https://doi.org/10.1016/j.ribaf.2007.04.001
Musawa, N. and Mwaanga, C. (2017). The Impact of Pension Funds' Investments on the Capital Market: The case of Lusaka securities Exchange. American Journal of Industrial and Business Management, Vol. 7 No. 10 [Online] 10.4236/ajibm.2017.710080 (Accessed: 17 September 2024) DOI: https://doi.org/10.4236/ajibm.2017.710080
Mutafu, W. C. and Mazhambe, Z. (2023). Evaluation of the Impact of the Lusaka Stock Exchange on the Financial Performance of Telecommunication Companies in Zambia: A Study of Airtel Zambia Limited (2012 – 2021). INTERNATIONAL JOURNAL OF RESEARCH AND INNOVATION IN SOCIAL SCIENCE (IJRISS), ISSN No. 2454-6186 /IJRISS |Volume VII Issue VI June 2023. Page 494 DOI: https://doi.org/10.47772/IJRISS.2023.7638
Muyanga, P. (2019). A Study of Macro-economic Factors Affecting Performance of the Stock Market in Zambia. A Case of the Lusaka Securities Exchange. Lusaka, Zambia. The University of Zambia.
Njenga, G., Machagua, J. and Gachanja, S. (2022). Capital Markets in sub-Saharan Africa. WIDER Working Paper 2022/112. Helsinki: UNU-WIDER. DOI: https://doi.org/10.35188/UNU-WIDER/2022/246-1
Omotoso, M. O., Oni, F. and Tilo, N. (2024). Impact of Financial Intermediation and Regulatory Frameworks on Financial Deepening and Economic Growth: Insights from Lesotho. [Online] Available at: https://www.researchgate.net/publication/385678060_Impact_of_Financial_Intermediation_and_Regulatory_Frameworks_on_Financial_Deepening_and_Economic_Growth_Insights_from_Lesotho [Accessed 2025]. DOI: https://doi.org/10.47941/ijf.2338
Pahwa , A. (2023). Questionnaire: Definition, Types, Examples and How To Design. [Online] https://www.feedough.com/what-is-questionnaire/ (Accessed: 17 May 2024)
Picardo, E., Murry, C. and Ecker, J. (2024). FDI and FPI: Making Sense of It All. [Online] Available at: https://www.investopedia.com/articles/investing/012914/foreign-investment-routes-fdi-and-fpi.asp [Accessed 2025].
PricewaterhouseCoopers, PwC. (2021). Listed companies analysis report 2021. [Online] https://www.pwc.com/zm/en/publications/listed-companies-analysis-report.html (Accesed: 29 April 2024)
Putri, A. and Tanno, A. (2024). Exploring Market Dynamics: A Qualitative Study on Asset Price Behavior, Market Efficiency, and Information Role in Investment Decisions in the Capital Market. [Online] Available at: https://www.researchgate.net/publication/382019191_Exploring_Market_Dynamics_A_Qualitative_Study_on_Asset_Price_Behavior_Market_Efficiency_and_Information_Role_in_Investment_Decisions_in_the_Capital_Market [Accessed 2025]. DOI: https://doi.org/10.57178/atestasi.v7i2.884
Rajan, R. G., and Zingales, L. (2003). The Great Reversals: The politics of Financial Development in the 20th Century (Working papers No 265). Organisation for Economic Co-operation and Development [OECD].
Raza, A., Iqbal, N., Ahmed, Z. and Ahmed, M. (2012). The Role of FDI on Stock Market Development: The Case of Pakistan’. Journal of Economics and Behavioural Studies Vol. 4 (1), pp. 26-33. DOI: https://doi.org/10.22610/jebs.v4i1.299
Samuels, J. A. (2024). Understanding the Dynamics of Financial Markets: A Comprehensive Analysis. [Online]
Available at: https://www.researchgate.net/publication/378359439_Understanding_the_Dynamics_of_Financial_Markets_A_Comprehensive_Analysis [Accessed 2025].
Scott, G. and Jackson, A. (2021). Capital Market Vs. Stock Market: An overview. [Online] https://www.investopedia.com (Accessed: 3 May 2024)
Securities and Exchange Commission, SEC. (2014). Capital Markets. [Online] http://www.seczambia.org.zm/wp-content/uploads/2018/11/Capital-Markets-Bulletin-Volume-1.pdf (Accessed: 6 June 2024)
Seth, S., Scott, G. and Kvilhaug, S. (2024). Market Capitalization: What It Is, Formula for Calculating It. [Online] Available at: https://www.investopedia.com/investing/market-capitalization-defined/ [Accessed 2025].
Shamalime, J.M. and Yohane, R. (2024). Breaking Through Limits: Exploring Factors Hampering Growth in Zambia’s Capital Markets-Lusaka Securities Exchange Perspective. International Journal of Learning and Development, Vol. 14, No. 2 ISSN 2164-4063 h DOI: https://doi.org/10.5296/ijld.v14i2.22016
Sin-Yu, H. and Bernard, N. (2017). Determinants of Stock Market Development: A Review of the Literature. Studies in Economics and Finance. 34(1):143-164. DOI: https://doi.org/10.1108/SEF-05-2016-0111
Soumaré, I., Kanga, D., Tyson , J. and Raga , S. (2021). Capital Market Development in sub-Saharan Africa: Progress, Challenges and Innovations. [Online] https://cdn.odi.org/media/documents/ODI_Working_Paper_2_Capital_markets_development_in_SSA_FINAL_clean.pdf (Accessed: 21 August 2024)
Sredojević, D., Cvetanovic, S. and Gorica, B. (2016). Technological Changes in Economic Growth Theory: Neoclassical, Endogenous, and Evolutionary-Institutional Approach. [Online] Available at: https://www.researchgate.net/publication/305677305_Technological_Changes_in_Economic_Growth_Theory_Neoclassical_Endogenous_and_Evolutionary-Institutional_Approach [Accessed 2025]. DOI: https://doi.org/10.1515/ethemes-2016-0009
Tamminen, A. K. and Poucher, Z. A. (2020). The Routledge International Encyclopedia of Sport and Exercise Psychology.
The Global Economy (2023). Zambia: Stock market capitalization, percent of GDP. [Online] Available at: https://www.theglobaleconomy.com/Zambia/Stock_market_capitalization/ [Accessed 2025].
The World Bank (2022). Capital Markets. [Online] https://www.worldbank.org/en/topic/financialsector/brief/capital-markets (Accessed: 3 June 2024)
Torre, A., Gozzi, J. C. and Schmukler, S. L., 2007. Capital Market Development: Whither Latin America? World Bank NBER-IASE 2005 conference and volume “Financial Markets Volatility and Performance in Emerging Markets” Available at: http://www.worldbank.orglaccapitalmarkets DOI: https://doi.org/10.7208/chicago/9780226185040.003.0005
Uganda Technology and Management University, UTAMU. (2014). Graduate Studies Guidelines on Proposal and Dissertation Writing, Uganda, UTAMU.
Yang, S. P. (2024). The Determinants and Growth Effects of Foreign Direct Investment: A Comparative Study. [Online] Available at: https://www.mdpi.com/1911-8074/17/12/541#:~:text=Conversely%2C%20the%20endogenous%20growth%20theory,developed%20nations%20to%20developing%20ones. [Accessed 2025].
Yartey, C. A. (2008). Determinants of Stock Market Development in EmergingEconomies ; Is South Africa Different? IMF working paper - WP/08/32Washington, International Monetary Fund. DOI: https://doi.org/10.5089/9781451868944.001
Yartey, C. A. and Adjasi, C. K. (2007). Stock Market Development in Sub Saharan Africa: Critical Issues and Challenges. IMF Working Paper, WP/07/209. DOI: https://doi.org/10.5089/9781451867732.001
Yeboah, E., Baffour, A. A., Chibalamula, H. C. and Atiso , F. (2025). The Significance of Foreign Direct Investment (FDI) and Trade Openness: Evidence from Nine European Economies. [Online] Available at: https://link.springer.com/article/10.1007/s43546-025-00798-8 [Accessed 2025]. DOI: https://doi.org/10.1007/s43546-025-00798-8
Ziorklui, S. Q. (2001). Capital Market Development and Growth in Sub-Saharan Africa. The case of Tanzania. African Economic Policy, Discussion paper number 79, February 2001.
Downloads
Published
Issue
Section
License
Copyright (c) 2025 Patson Kapusana, Dr. Austin Mwange (Author)
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
How to Cite
