THE IMPO RTANCE OF THE NIGERIAN CAPITAL MARKET TO BUSINESS ORGANIZATIONS. (A CASE STUDY OF PORTACOURT STOCK EXCHANGE)
The Nigerian capital market was established to perform certain functions, which are paramount to the development and growth of the economy. This includes the accumulation of capital from diveresed fund serves and make such available to users of funds.
The purpose of this study was to determine the extent to which the development of business organization, to establish the importance of the capital market in servicing the banking and manufacturing sector of business.
Hypothesis formulate in this regard are:
Ho1 The Nigerian capital market is of no importance to business organization
The Chi-square was used to test the hypothesis.
Questionnaire were distributed.
The study made the following recommendation
1) Increased awareness should be create especially in rural areas.
2) Compensation of trade transactions should be encouraged.
3) More couraces taking capital market in the tartaric institution should be encouraged.
4. Investigation needs to be carried out on the influences of the Nigerian capital market on business organization.
1.1 PROBLEM INDETIFICATION AND PURPOSE OF STUDY
In this research work, the researcher intends to study the importance of the Nigerian capital market to business organisatio of this country. Apart from its fund mobilization function, it thus performs intermediacy role by making it possible for those who have surplus funds to be able to loan it out to those in need of it for productive purposes (Orji, 2000)..
The purpose of the study is stated as follows:
1. To determine the extent to which the Nigerian capital market contributes to the development of business organizations
2. To establish the importance of the capital market in semicing the banking an manufacturing sectors of business.
3. to make recommendation on how to improve the operation s of the market which will aid in the development of business organizations and the economy as a whole.
1.2 RATIONALE OF THE STUDY
I decided to write on this topic because of the following reasons;
1. I have special interest in the Nigerian capital market business of its significant role in the banking industry. For example, so many banks are running to the Nigerian capital market to raise funds, so that they can meat up with the new capital base of N25 billion. As a banker, I am supposed to know how the banks raise their funds.
2. I hope that through this project work other people who ar not aware of the importance of the Nigerian capital market will get to know about it after reading my work.
1.3 SIGNIFICANCE OF THE STUDY
This study will enlighten the business proprietor on how to raise the much needed capital through the Nigerian capital market to improve his business performance.
This study will also enlighten the general public and investors on the need to invest in the Nigerian capital market.
It will also enable the students to read or study more about the Nigerian Capital market.
The study will also enable other researchers to carryout more research on the topic
Also the authorities who are already conscious of the problems of the stock exchange who benefit from the recommendations of this work for improvement.
1.4 DEFINTION OF TERMS
1. CAPITAL MARKET: It is a market where long-term goods are obtained or where long term functional assets such as debenture, stock, shares are bought and sold.
2. STOCK MARKET: is an institution in a boarding conceived capital market, consisting of arrangement of mechanisms for raising capital though the initial issue of securities.
3. PRIMARY MARKET: is a market where new securities are traded for the first time by the issuing co-operation.
4. SECOUNDARY MARKET: is a market where second hand o previously issued securities are braded.
5. PRICE EARNING RATION: This represents the current investors re willing to pay for each naira of the forms earning.
6. PRICE EARNING INDEX: Means compilation showing average current market value of common stock compared with their average market value at an earlier base period.
7. CALL OVER: is a method adopted by the Nigerian stock dealers and any interested dealer indicates his interest by going into bidding.
CHAPTER TWO LITERATURE REVIEW
2.1 THEORITICAL REVIEW
According to Awhaniokohr (1981)” Capital market is defined as the complex of institutions and mechanisms through which intermediate term funds and long term funds are padded and made available to business, government and individual and instruments already, outstanding and transferred”’. The Key element of the designation can be summarized as follows; the institution and sub-division of the market into primary and secondary market.
According to Adekanye (1987), the capital market is the market from which large companies and public enterprises attract long- term investment fund through a network of financial institutions and stock brokers licensed to perform capital market functions. In other words, it is the market for buying and selling of shares in limited companies and other stocks. The market actually performs the function for financial intermediation whereby savings of some members of the society are made for production and investment.
According to Iloh (2001), The capital market is the market form which large corporate organizations, and public institutions can source long-term inventible friend by the use of the capital market is the market from which large corporate organizations and public institutions can source long –term inventible friend by the use of the capital market institution. It can also be described as the market for the buying and selling of capital market instruments such as shares, bonds, debentures etc. this market mobilizes the savings of some members of the society and markets same available to other members of the society for investment purposes.
According to Orji (2001),The Capital market refers to a collection of financial institution, which provides long-term funds for investment purposes. It offers investors the opportunity of borrowing and lending funds on a long term basis.
According to Ekwundayo (1990), the capital market can be broadly defined ad an institution where quoted investment including stock and shares may be exchanged between buyers and sellers.
Traditionally, the capital market is divided into primary and secondary market. A primary market is a market for the issuance, sale and purchase of new issues of capital market investment such as shares and other debit instrument. The secondary market is a market for trading or reselling of primary market instrument like shares and other debt instruments.
Africa stock exchanges are developing and growing in size, although they are still in their infancy, even by the emerging markets standards. Within Africa, however South Africa remains a great force in capital market development with market capitalization exceeding those of countries in Latin America and some south East Asian countries the south and East Asian regions remains the most advance and active among emerging markets.
According to Briton (1970) in the UK, where percentage of funds raised by issue of considered is be the highest among developed countries, it has been shown by professor Briton that net capital issues unlikely constitute much more than 10 percent of the total sources of funds for British companies between 1963 and 1974, internal sources of funds provided more than half of companies financial requirement in the U.K. while percentage grew by 70 percent in subsequent tears, the contribution of the stock market was very minimal. However, in these days of high industrial and technological advancement, the contribution of the stock market to companies in the U.K has been enormous
Baker, (1970) also observed that the German financial system witnessed or rather passed through a revolutionary period in 1948, this was when the first joint - stock compares which could issue shaes or departures to the general public to raise its required capital.
This the importance of the stock market in the generation of funds for large industries worldwide cannot be over emphasized. The Nigerian stock market can aid enterprise in the country. thereby contributing to the economic development of the country.
As at independence in 1960, Nigerian had no capital market rather like many developing countries in the 50’s and 60s’, the financial system comprised mainly short- term commercial trade for their immediate needs had no market for them and had to repatriate these funds for investment overseas. This resulted in a net export of capital at a time it was needed most for development purposes. This problem thus provided the catalyst for the establishment of a capital market in Nigerian. The year 1959 remains a milestone in the development of the Nigerian financial system. It was the year that the key financial institutions such as the central Bank of Nigeria (CBN), the Nigerian stock exchange. (NISE), etc. (Akwamiokor, 1981)
According to Mpambugo (1998), To ensure that capital is allocated between competing ends, also to channel savings investments for economic growth and development, it is important to develop a well co-ordinate capital market within the frame work of any development of a stock market in Nigeria was induced and fostered by the government as in some developing countries Attempts at capital formation dates back to 1951 when a loan fund for financing some public utilities was created. This and some other endeavours contained in the ten-year development plan 1946 – 1955, constituted the first significant attempt under the British Colonial administration to give opportunities to Nigerians and revotutionalize the capital market. Despite this, however, the colonial policy of that era held back the growth of the market as it was perceived to have a reducing effect on the market of Brish made goods the need to set up an organized stock market in the country was recognized when the then federal minister of commerce and industry in may 1958, appointed a committee under professor R.H. Barback, the direct of the Nigerian institute of social and economic Research (NISER), to consider ways and means of fostering a share market in Nigeria. The committee’s report was as expected, favourable and it recommended amongst other things.
(i) The creation of facilities for dealing in shares.
(ii) The establishment of nules regulating transfers.
(iii) Measures to encourage savings and issues of securities of the government and other organization in May 1959, the central Bank if Nigeria in pursuance of its role in respect of the development of a market in Nigeria folded the first federation of Nigerian Development loan stock of H4 million behalf of the government. Because forma stock had not been established, the central Bank had to except of effort and time to ensure that the stock was floated by introducing arrangement, involving the maintain of a central register for marching buyers and sellers of share suggesting a price at which a deal had been conducted.
The favourable report of the Barback committee saw the emergence of the Lagos stock exchange now the Nigerian stock Exchange) on the 15th of September 1960. The need for government recognition and protection promoted the promulgation of the Lagos sock exchange Act 1961. This act restricted the business of stock broking in Nigeria to only members of the exchange. The membership of the stock exchange has continued to grow from year to year.