THE IMPACT OF CAPITAL MARKET ON DEVELOPMENT OF NIGERIA ECONOMY
ABSTRACT
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigeria capital
market is a complex institution where medium and long term funds are put
together and made available and also instruments like stocks shares, debentures
and bonds are transformed.
The financial institution
comprises of the Nigeria market includes commercial banks, merchant banks,
development bank, insurance companies unit trust, pension fund and the stock
exchange.
The capital market is
broadly categorized into two classes:
1. The Primary market
2. The secondary market
THE PRIMARY MARKET
This is a market in which
companies or government can raise funds by issuing shares or loan stocks.
Quoted companies can also involve fresh funds.
The Nigerian stock
exchange also involve in the primary market.
THE SECONDARY MARKET
This is a market for
buying and selling existing securities. Secondary markets are vehicles for
providing liquidity to investors. Where securities are openly, the stock
exchange provides free entry and free exists for investors through trading in
secondary market.
The Nigeria stock
exchange was established in September 15, 1960 as the Lagos Stock Exchange but
actually started operations in June, 1961 prior to this, all formal savings and
deposits went through the banking system while major capital balance were
invested for the country. On June 5, 1961, the exchange opened its doors for
business. It is owned by 135 (One hundred and thirty five) shareholders made up
of financial institution stock brokers and individual Nigerians.
The Nigerian Stock
Exchange has a president and council members, Chairman and Board of Directors
who are elected at the annual general meeting by members of the exchange. The
tenure of office of the president is limited to a one-three year term. The
council is responsible for policy making, but day-to-day running of the affairs
of the exchange is vested in the office of the Director General and its
management team (NSE 1999).
The NSE has the following
trading floor / branches in major cities of the Federation, Kaduna (1978), Port
Harcourt (1980), Kano (1989), Onitsha (Feb, 1990) Ibadan (Aug. 1990) Abuja
(October, 1999 and Yola (April 2002).
As at the inception in
1961, the NSE started trading in Lagos with 19 securities
valued at N80 million listed on it. This has grown to 283 listed companies with
a total market capitalization of about N15 trillion. All listings are included
in the only index, the NSE all share index. The NSE is responsible for listing,
delisting and general discipline in the stock market as well as the orderly
conduct.
The NSE is organized in
such a way that only the dealing member companies of the exchange that are
allowed to trade on its trading floor on behalf of their numerous clients and
there is a regime of rules and regulations to guide the conduct of their
operations. It enables the holders of securities to convert them into cash
quickly and without inconveniences and also at a compulsory moderate cost. The
state of health of the companies is determined by evaluation of the studies.
Oba E. (1999) Basic
understanding of capital market operations, Lagos, Deacon Oba Ekiran Publishers.
1.2 STATEMENT OF THE PROBLEM
The following are the
statement of the problem in this research work.
i.
The
Nigeria
capital market which is supposed to being avenue for sourcing long term funds
to finance long-term project is not as developed as her foreign counterpart.
ii.
It
has therefore not been able to judiciously perform its primary obligation of
meeting long-term capital needs of the deficit sectors, through efficient
accumulation of capital or mobilization of funds from the surplus unit of the
economy, and effectively channel mobilized funds for more economic use.
A critical study of both
the real and service sector will elucidate this fact. This study is undertaken
to examine the contribution of the capital market in the Nigeria
economic growth and development
1.3
OBJECTIVES OF THE STUDY
The primary objective of
the study is to evaluate the impact of capital market on development of Nigeria
economy.
Other
specific objective are as follows:
1. To assess the performance of the
capital market in relation to the economic growth in Nigeria.
2. To analyse the rate at which new
stocks are issue on the capital market.
3. To appraise how the operations of the
market could be improve to boost economic growth and development of Nigeria.
4.
To evaluate the operations of the Nigeria capital market.
1.4 RESEARCH QUESTIONS
This research shall be
guided by the following research questions.
1. How does the capital market impact on
the economic growth and development process in Nigeria?
2. What is the trend of trading
activities on the capital market?
3. What is the rate at which new stock
are issued on the Nigeria
capital market?
4. How could the capital market through
its crucial role stimulate economic growth in Nigeria?
1.5 STATEMENT OF HYPOTHESIS
The hypothesis that would
be tested in the course of this research is state below as:
H0: That
the capital market operations have not contributed to Nigeria economic growth.
H1:
That the capital market operations have contributed to Nigeria Economic growth.
1.6 SIGNIFICANCE OF THE STUDY
The study will explore
the impact or effectiveness of capital market instruments on Nigeria economic growth. Though the
scope of study will be limited to the capital market it is hoped that the
exploration of this market will provide a broad view of the operations of the
capital market. It will contribute to existing literature on the subject matter
by investigating empirically the role, which the capital market plays in the
economic growth and development of the country. The main importance of this
study is that it will provide policy recommendations to policy makers on ways
to improve operations and activities of the capital market.
1.7 SCOPE OF THE STUDY
This research work will
only look at a particular part of the economy (the financial sector) this work
will not cover all the facets that make up the financial sector, but shall
focus only on the capital market and its activities as it impacts on the
Nigeria economic growth. The empirical investigation of the impact of the
capital market on the economic growth in Nigeria shall be restricted to the
period between 1986 and 2010 due to the non-availability of some important data.
1.8
DEFINITION
OF TERMS
Capital: A capital
can be defined as assets or resources available to the individual or organization
whether permanently (i.e. down capital) or temporary (i.e. debt capital).
Therefore it can be physical or financial.
Capital Market: Capital
markets is the market for raising and investing long-term funds. Financial
instruments traded on this market are equities and loan stock having maturity
period of three years or longer.
Dividend: A portion of the net earning that has been officially
declared by the board of directors of a company for distribution to
shareholders.
Financial Market: This
simply means the various facilities provided by the financial systems for the
creation of custodianship and distributions of financial assets and
liabilities, investments trust and mortgage institutions.
Insurance Companies: These are risk underwriters
for life and non-life business. Their non-life comprises of short-term
liabilities by way of claims during the life of the policy usually a year.
Issuing Houses: These are institutions whose primary
responsibility is to take companies to the capital market to raise funds
through primary issues.
Prospectus: A prospectus is a document through which a public
limited liability company offer for subscription or for sales of its shares to
the public detailing information about the offer.
Portfolio Investors: They are institutions that
are established to manage huge investment funds for one group of corporate
investors.
Shareholder:
The possessor of shares or stock in an organization corporation or company by
investing in the securities available in the capital market.
Stock Exchange: This is a primary market in which companies
and other institutions raise funds by
issuing shares or loan stock. It is also a secondary market for buying and
selling existing securities (Shares and loan stocks).
Stock Brokers: A stock brokers is a firm or person who buys
and sells securities on behalf of investors for a commission called brokerage.
CHAPTER TWO
LITERATURE REVIEW
2.1 INTRODUCTION
The capital market has
been identified as an institution that contributes to the socio-economic growth
and development of emerging and developed countries (economies). This is made
possible through it vital role in intermediate process in those economies.
Osaze (2000) sees the capital market as the criver of any economy to growth and
development because it is essential for the long term growth capital formation.
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