An Original Investigation of Law and Finance Theory in the Nigerian Context: Reformulating the Legal Origin Hypothesis for Post-Colonial African Markets

The law and finance hypothesis, which posits that common law legal origin produces better financial market outcomes than civil law origin, has been influential in comparative law and development economics but has not been empirically tested for post-colonial African markets that inherited common law systems with distinct institutional and political economy characteristics that may produce different outcomes than predicted. This study makes an original contribution by reformulating the legal origin hypothesis for post-colonial African common law markets, using Nigeria as the primary case study and comparing outcomes with other post-colonial African common law and civil law systems. The theoretical contribution involves developing an original Post-Colonial Legal Origin Framework (PCLOF) that distinguishes between formal legal origin and effective legal institution quality, arguing that the developmental effects of common law heritage in Nigeria are mediated by institutional quality, colonial legacy administrative structures, and post-independence political economy factors not captured in the original law and finance literature. Empirically, the study constructs an original Legal Institution Quality Index for 20 African jurisdictions combining financial development indicators, judicial quality metrics, creditor rights scores, and investor protection measures, and tests PCLOF predictions using panel data regression for 2005 to 2023. Results indicate that common law origin has a marginally positive effect on financial development in Africa when institutional quality is above a threshold level, but the effect disappears or reverses in low institutional quality environments, consistent with PCLOF predictions. The study constitutes an original empirical and theoretical contribution to the law and finance literature with specific application to Nigeria's financial sector development agenda.

Keywords: law and finance, legal origin, financial development, post-colonial Africa, institutional quality