ASSESSMENT OF THE PERFORMANCE OF THE CAPITAL MARKET IN A DEREGULATED ECONOMY, THE NIGERIA EXPERIENCE 1986-2017
ABSTRACT
This study is an assessment of the
performance of the capital market in the deregulated Nigerian economy
from 1986-2017. The research focus was directed toward a deeper
understanding of how capital market performance has impacted on capital
formation and economic growth in Nigeria. We concentrated on two capital
performance indications namely; market capitalization and growth in the
number of listed securities. Secondary data from Central Bank of
Nigeria (CBN), Nigeria Stock Exchange (NSE), and Federal Office of
Statistics (FOS), which were obtained through library research of
relevant publications, were used. The econometric technique of multiple
regression analysis was used as the main estimation tool to measure the
degree of relationship between capital formation and Nigeria’s economic
growth respectively and capital market performance measures. The study
was guided by two hypotheses. Both linear and log linear specifications
of each of the relationships were tried. Our hypotheses were tested with
the R2 test and f-test. The major findings of the study were: that the
log linear specifications suit our data more in terms of goodness of
fit, precision of the estimates and tolerable level of multi
collinearity and that capital market performance has both significant
and positive impact on capital formation and economic growth in the
deregulated Nigerian economy. The study concluded that to increase the
level of capital formation in Nigeria and enhance economic growth of the
country, efforts should be made to enhance the performance of the
capital market but how fast the market moves to assume its rightful
position as a major channel of capital formation needed for Nigeria’
rapid economic growth will depend on how fast the major obstacles
impeding its performance are dispensed with. It recommended some
measures to be implemented to enhance the performance of the Nigeria
capital market. Like The regulatory and supervisory framework needs to
be continuously reviewed and strengthened to embrace the activities of
the market, emphasis on transparency and accountability on all aspects
of economic management and corporate governance, etc.
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The capital market is a financial market
that provides facilities for mobilizing and dealings in long-term funds
for economic growth and development. Wilkinson (2007) defines capital
market as “any place or system where the requirements of business
enterprises and public authorities or governments for medium and
long-term capital funds can be met”. It is the market in which corporate
equity and long term debt securities that is shares and bond (those
maturing in more than one year) are issued and traded.
Ajie (2002) is of the view, “that pivotal
role of the capital market in any economy could have been dispensed
with, if a firm or even an individual for that matter could operate in a
financial vacuum”. As a matter of fact, it is because firms for
example, operate in close contacts with various financial intermediaries
and markets that they are afforded not only the mechanism through which
their idle funds can be invested but also one that is capable of
satisfying their needs for additional funds.
As observed by Okereke-Onyiuke (2000),
raising funds from the Capital Market makes possible among others, the
construction of factories, offices, buildings, highways, bridges and the
acquisition of machineries. This opportunity which the Capital Market
offers facilitates capital mobilization and allocation among several
competing activities.
In theory, Capital Markets are intended
to provide investors and borrowers with a wide range of trading and
investment vehicles and to better mobilize and allocate a country’s
financial resources and support economic growth. This market brings
together all the providers and users of capital. Buying stock allows
investors to gain an equity interest in the company and become part
owner. When investors buy bonds, they essentially loan money to the
company or government that issued the bond and become creditors of that
issuer. The market also provides them with new and more varied saving
vehicles as alternative to bank deposit. For borrowers capital markets
provide access to more funds for expansion which can help in economic
growth.
Levine and Zervos (1998) are of the
opinion that well functioning capital market, along with well designed
institution and regulatory system, foster economic growth through
private initiatives.
There is empirical evidence strongly
suggesting that well functioning capital market promote long-run
economic growth. In particular, Levine and Zervos (1998) find that
indicators of capital market performance such as market capitalization,
turnover, growth in the number of listed securities, and so on are
correlated with economic growth and its sources – total factor
productivity growth and capital formation.
In the recent past, capital market
performance has received increased attention among governments and
development finance institutions, with emerging market accounting for a
growing share of the worldwide boom in the capital markets. Countries at
different levels of development are promoting the performance of their
capital markets with the expectation that these efforts will pay off in
terms of faster economic growth.
In Nigeria, the role of the capital
market in economic growth of the country has continued to attract
increased attention from the government and market practitioners.
Al-Faki (2008), emphasizes that “the Nigerian capital market has
experienced considerable growth in the last decade. In the last year
alone (2007), the Nigerian
Stock Exchange all-share index has almost
doubled to 51,000 points, and market turnover has also increased”.
According to him, the factors responsible for this growth of market are
firstly, public enlightenment programmes that the Commission carries out
periodically to reach and enlighten the public all over the country.
Other factors are the reduction of the cost of transaction which has
enhanced competition in the Nigerian capital market. The Commission, in
collaboration with other stakeholders, has also continued with the
efforts aimed at promoting the reactivation of the bond market in
Nigeria.
According to Wilkinson (2007),
“deregulation is defined as dismantling or abolition of state
intervention in economic matters with the purpose of reducing the
influence of the state in the economy, abolishing bureaucratic obstacles
and legal regulations”. The deregulation of the Nigerian economy
started with the introduction of the Structural Adjustment Programme
(SAP) in July 1986 and since then, conscious efforts are made regularly
to put in place new policies and where necessary, fine tune existing
ones to ensure rapid and sustainable economic growth of the country;
emphasizes reliance on the country’s natural resources (Nigeria, 1986).
As observed by Okereke-Onyiuke (2000),
properly articulated and implemented, these government reforms are bound
to improve the performance of the Nigerian capital market as a vehicle
for increased capital formation thereby leading to rapid economic growth
of the country”. This improvement would help the capital market’s
ability to mobilize savings, attract new listing and liquidity through
increased trading activities (turnover).
Therefore, this study attempts an
assessment of the performance of the Capital Market in the deregulated
Nigerian economy and covers the period 1986-2006.
1.2 STATEMENT OF THE PROBLEM
A capital market like Nigeria’s is
bedeviled with a lot of problems that make exact measurement of its
impact on various aspects of the economy quite challenging. Some
economic analysts like Okigbo Report (1986) and Odife Report(1996) have
observed that the Nigerian Capital Market has performed below
expectations as a purveyor of cheap and stable funds for Nigeria’s
economic growth due to its underdevelopment, which has impeded long-term
funds flow through it. They argue that the performance of the Nigerian
Capital Market as a source of long-term financing of Nigeria’s economic
growth is inhibited by among other things; pervasive poverty that has
impacted adversely on the saving culture; poor partnership spirit of
Nigerians that has inhibited the development of public limited
companies; poor perception of the market by offshore investors; low
public awareness of the benefits of investing in the Capital Market;
poor dissemination; few number of trading instruments; low market
capitalization; high transaction costs in the market; bad corporate
governance among others The need to eliminate these observed performance
inhibitors and therefore enhance the performance of the Nigerian
capital market has led the federal government through the Nigeria Stock
Exchange (NSE), Central Bank of Nigeria (CBN), the Securities and
Exchange Commission (SEC) to embark on reforms aimed at a broader,
deeper and more efficient Capital Market.
The on-going reforms in the capital
market in addition to the privatization programme of the government and
the consolidation programme taking place in the banking and insurance
sectors through the capital market are expected to deepen the market,
assist Nigerians in imbibing the culture of investing in the capital
market and therefore increase the activities of the capital market.
However, evidence from the Nigerian
Capital Market shows that in spite of these deregulation, the market is
still characterized by few number of trading instruments, low market
capitalization, low market turnover, unrealistic stock pricing, high
transaction cost, lack of market transparency, and so on. Thus, there is
need for a proper assessment of the performance of the capital market
in the deregulated Nigerian economy.
1.3 OBJECTIVE OF THE STUDY
The general objective of this study is to
assess the performance of deregulated capital market in the
mobilization of long term funds for Nigeria’s economic growth.
Specifically, the study seeks to achieve the following:
- Evaluate the impact of deregulated capital market performance measures on capital formation in Nigeria
- Examine the impact of deregulated capital market performance measures on the Nigerian economy.
1.4 RESEARCH QUESTIONS
Our research questions are:
- How does the deregulated capital market impact on gross fixed capital formation in Nigeria?
- How does the deregulated capital market impact on the economy?
1.5 HYPOTHESES OF THE STUDY
This study was guided by the following hypotheses:
Ho1: The capital market
performance as measured by market capitalization and growth of listed
securities does not have significant positive impact on gross fixed
capital formation.
Ho2: The capital market
performance as measured by market capitalization and growth of listed
securities does not have significant positive impact on gross domestic
product.
1.6 SIGNIFICANCE OF THE STUDY
This study is significant for a number of reasons:
- The study will expose the performance of the capital market in resources mobilization in a deregulated economy such as Nigeria’s.
- The examination of the performance of the capital market in a deregulated Nigerian economy will keep market participants including investors informed in the benefits of the government on business and investment.
- The study will also keep policy makers informed as to whether deregulation programmed of the government and reform process are in course, that is, achieving the desired goals and if not the problems militating against it.
- Furthermore, the study will show if the reforms made so far in the Nigeria capital market are adequate to bring about the much needed investment flow for economic growth.
- In addition, the study will suggest ways to improve the effectiveness of the reform programmed and how best the Nigeria capital market could be invigorated to meet the growth needs of the economy.
Finally, the work will serve as reference material for future and further work in related areas.
1.7 SCOPE OF THE STUDY
This study covered the period of 1986 to
2006. The Nigerian economy and the capital market in particular are
believed to have witnesses major reforms aimed at enhancing their
performance within this period. The study concentrated on the Nigeria
capital market size. Market capitalizing is the value of a corporation
as determined by the price of its equity performance indicators namely;
Market Capitalization and growth in listed securities. The study will
also keep policy makers informed as to whether
1.8 OPERATIONAL DEFINITION OF TERMS
- Allotment: The part of stock issue apportioned or assigned by an investment firm to a purchase or subscriber usually.
- Collateral Security: Any security put up to reinforce an obligation
- Delivery: The handing over of possession of shares certificates on a delivery day.
- Ex-dividend Date: The day, on or after which the night to receive a current dividend is not transferred automatically
- Ex-dividend (Ex Div, Xd) Period: The period during which the quoted price of a security excludes the payment of any declared dividend to the buyer, and the dividend reverts to the seller.
- Floatation: The issue of a security by a new company or on behalf of the company by an issuing house.
- Issue Price: The price for a new security sold to the public determined by an underwriter or syndicate.
- Listed Securities: Any bonds or stocks that have been admitted for trading on a stock exchange and whose issues have complied in every way with the listed requirements of the exchange.
- Market Capitalization: The value of a firm as determined by the market price of the issued and outstanding common stock.
- Stock: The legal capital of a corporate dividend into shares.
REQUEST FOR PROJECT MATERIAL
Good Day Sir/Ma,
WARNINGS!
PLEASE make
sure your project topic or related topic is found on this website and
that you have preview the abstract or chapter one before making payment.
Thanks for your interest in the research
topic. The complete research work will cost you N2000 and we will send
the material to you within 24hours after confirming your payment.
Make the payment of N2000 into any of the account
number below and we will send the complete material to you within
24hours after confirming your payment.
Account Name: Agada Leonard E
Account No: 2070537235
Bank: UBA
Or
Account Name: Agada Leonard E
Account No: 3049262877
Bank: First Bank
Or
Account Name: Agada Leonard
Account No: 0081241151
Bank: Diamond Bank
After payment, send the following information to us through this email
address: enemsly@gmail.com
Topic paid for:
Amount Paid:
Date of Payment:
Teller No or Transaction ID:
Name of Depositor:
Depositor Phone Number:
Email address:
NOTE: The material will be forwarded to the email address you provided
within 24hrs after confirmation of the payment.
Thanks.
Agada Leonard E.
For: Enems Project.
For more information visit our contact page @ CONTACT US
No comments:
Post a Comment