The Effects of Transaction Costs on Investor Sentiment: Evidence from the Nigerian Electricity Service Industry

Abstract

Privatisation of the Nigerian Electricity Service Industry represents a bold first step on a multi-dimensional journey to social and economic development. Significant challenges remain to be overcome. This paper examines the reforms through the lens of New Institutional Economics in order to determine how weak institutions have so far confounded seasoned local investors and international advisors, by looking for the presence of excessive transaction costs. The reform environment is based on Williamsons 4 levels of social analysis and subjected to evaluation based on four areas deemed critical for reform success, namely property rights, market structure, conflict resolution mechanisms and policy implementation capabilities. The study is restricted to investors in electricity distribution companies, and the presence of high transaction costs used as proxy for institutions in need of further improvement. The study finds that providing quality asset performance data and changing a culture that tacitly accept electricity theft and late bill payment, will reduce the transaction costs associated with defining and protecting Investors property rights. However, the regulatory environment must mature to enjoy the confidence of government, consumers and investors, who continue to remain optimistic.