IMPACT OF CAPITAL MARKET INSTITUTION ON NIGERIA ECONOMY (A CASE STUDY OF NIGERIA STOCK EXCHANGE LAGOS)
This research works is focused on the impact of capital market institution on Nigerian economy, A case study of Nigeria stock Exchange Lagos. The study examined the background of the study, it scope and limitation of the study and definition of terms. The existing literature on the role of capital market institutions, method employed in gathering relevant data were examined. The researcher work also considered the historical perspective of the Nigerian stock exchange and its operation and addition, data collection, The information for the study was collected using primary and secondary methods of data collection. For the primary data collection, questionnaires, personal observations and oral interviews were used while existing literature relevant to the topic was consulted for the secondary data. The researcher used chi-square statistical model to analyze the data. analysis presentation and question using statistical method and drawing conclusion from them. it was discovered at the end of the research work that capital market institution on Nigeria economy are unable to achieve their institutional goal because of inability to apply the theory of capital market in Nigeria stock exchange. Finally, for reaching recommendations were made to the management.
TABLE OF CONTENT
Title Page i
Certification Pages ii
Table of contents v
List of table x
CHAPTER ONE: INTRODUCTION
1.1 Background of the study 5
1.2 Statement of problem 7
1.3 Objective of the problem 8
1.4 Hypothesis 9
1.5 Research question 12
1.6 Significance of the study 13
1.7 Definition of terms 16
CHAPTER TWO: LITERATURE REVIEW
2.1 Definitions and size of Nigerian Capital market 18
2.2 Historical Development of Nigeria capital market 20
2.3 Capital market instruments 21
2.4 Type of capital market 24
2.5 Opportunities in the capital market 27
2.6 Environmental imperatives for capital market smooth functioning. 29
2.7 Characteristics of capital market 30
2.8 Role of capital market 32
2.9 Capital market and Economy Development 34
2.10 Development in the Nigerian capital market 36
2.11 Theoretical and conceptual issues: The Role of the capital market in Economic Development 39
2.12 Problems of the Nigerian Capital market 44
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY
3.1 Research design 49
3.2 Area of study 49
3.3 Population of study 50
3.4 Sources of data 50
3.5 Sampling method 50
3.6 Research Instrumentation 51
3.7 Validity and Reliability of Research Instrument 52
3.8 Reliability of instrument 53
3.9 Method of Investigation 54
CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA
4.1 Data presentation 56
4.2 Test of Hypothesis 61
CHAPTER FIVE: SUMMARY OF FINDINGS/ CONCLUSION AND RECOMMENDATION
5.1 Summary of findings 85
5.2 Conclusion 86
5.3 Recommendations 89
The capital market is the prime motor that drive any economy on its path to growth and development because it is responsible for long –term =growth capital formation. The money market only complements the capital market by providing the capital necessary working capital to support gross fixed capital formation. Unfortunately, the Nigerian capital market has not fully performed it natural function of finding investment. One of the major indicators of capital market development is the proportion of long-term fixed capital that is raise in relation to the gross domestic product. Between 1999 and 2004, capital formation in terms of long-term funds raised from market through new issues of securities to the gross domestic product averages only 1.36%, while the new issues to gross fixed capital formation averages 16.0% market capitalization to gross domestic products also average only 14.25% during the same period. It is therefore not surprising that the Nigeria economy has only been growing at an average of 32% annum over the period. Most of the funds raised in Nigeria have been short –term from the money market and these are not growth funds. According to Mary et al. (2012). Financial Institutions have not contributed much in financing capital investment but development.
The capital market has not been a popular source of funds because of the instability in the economy, low yields to investors in capital market instruments, and governments, and government overbearing in economic matters.
Capital market institutions
The capital market institutions are individual, institutions and instruments involved in the efficient channeling of funds from the surplus to deficit economic units. The capital market constituencies can be broadly grouped into four categories namely,
a. Provider of funds investor – individuals units, trust and other co-operate bodies).
b. Users of fund (companies and government).
c. Intermediaries facilities (stock broken firms, issuing houses, registrars).
d. Regulators (securities and exchange commission, the Nigerian stock exchange).
As could be seen, while provider of funds comprises of individual and companies, the user of funds, issuers of securities are expected to be companies and government. In order words individual may not be able to raise money from the capital market as they can do in money market.
Capital market is the section of the financial system, which represent medium to long-term funds for the investment needs of business and government Rising of funds in the capital market makes it possible amongst others, his construction of factories, offices building high ways, bridges and acquisition of machine. This opportunity, which the capital market offers, is a major facilitating capital mobilization and allocation.
However, the lack of adequate long-term of African economic. Therefore we are to move away from depressed economic state, funds must be effectively mobilized to enable African economic harness their human, material and management resources for optimal output.
Towards this end, many African countries and now organizing capital market as conducts for channeling long-term funds to their productive sectors and government project. the awareness of this credible alternative must have of supporting long term investment financing must have given to the decision at Abuja summit of organization of Africa Unit (OAU) head of state in 1991 that each country in Africa should setup a stock exchange as a way of element of the proposed African economic community (AEC). To a day there are nineteen stock exchange in Africa stock Exchange Association (ASEA) while at least five other African countries, Angola, Cameroon, Madagascar, Mozambique and Tanzania have indicated intention to establish stock exchange soon.
The kampala stock exchange in Uganda is one of the latest of such institution with Nairobi stock exchange and Tenzania forming a regional stock exchange for east Africa. The Abidjan stock exchange is being elevated into a regional exchange to serve the eight west African states and was commissioned in October 1997, recognizing the importance of capital experts also urged African countries to establish and promoted capital market and use market to implement programmes such as privatization.
1.1 BACKGROUND OF THE STUDY
The Nigerian stock exchange is one of the oldest institutions in the Nigeria financial market. Its history elates back to May 1958, when there were discussion both in the academic and business about the need for the establishment an organized capital market. This discussion resulted from the need the government to finance the growing budget deficit, which started from of 1958.
Secondly, to tackle deteriorating balance of payment position. Thirdly, to make the increasing demand from the naturalist and fourthly, to mobilize funds to embark on development programme.
As a first step, a committee was set up professor Bareback headed this committee. The committee was consider the ways and means of fostering a share market in Nigeria. The report of the Bareback committee publisher in 1959 gave birth to the establishment of the Nigerian stock exchange which began as Lagos stock exchange in 1961.
In 1977, it was renamed the Nigeria stock exchange with floors Lagos, Kaduna, Port Harcourt. The floor were later extended to no (1989) Onitsha (1990) Ibadan (1990) Abuja (2001) and Yola (2000) in the late seventies the federal Government set up the securities and exchange commission (SEC) by a decree no. 71 of 1979. It made SEC the apex regulation, institution responsible among other things for the registration of the market place (The stock exchange) with the aim of protecting the investing public from any fraudulent practices in securities transaction. This enhancing the confidence in and integrity of the capital Market. (The decree was later re-enacted as decree No. 29 of 1998).
1.2 STATEMENT OF RESEARCH PROBLEM
Trading on the stock exchange during the early years was however very low because of the slow rate of capital formation. The predominant lack of awareness of the mechanics of stock exchange transaction and poor communication. Buyers and sellers of securities were mostly concentrated in the Lagos area. During nine years 1962 to 1970, the stock exchange only handled new issues of industrial securities issues of federal government stock came out regularly at the rate once a year during the same period.
Very rarely however, did the annual turnover of the exchange exceed N15 million out of this government stock regularly accounted for between 90 and 98%. Today the picture has exchanged dramatically. New issues by the public sector now constitute well below 10 percent of total and gluts that used to form at least 600 percent of the total market value unit 1986, has been decking relative to equities and today constitute and 38 percent. The issues market absorptive capacity stands about N1.5 billion per annum and so far this year 200 new issues are 18 in number with a market value of approximately N800 million.
One could only regard this number as modest achievement considering the fact that the second tier securities market (55 mo has been in existence for about 12 years, we have however identified some of the problem hampering its growth. The sign fear of losing control of business upon quotation and lack of adequate acknowledge of capital market are the dialogue and enlightens seminars and workshops such as this one. However, in a market with average price earning ratio about 5.0 and is a market driven economy whose currency had a devaluation of about 8 – percent in 1986, we believe that the Nigeria stock market today provide the most rewarding opportunities and value to invest especially international investors.
1.3 OBJECTIVE OF THE STUDY
The objective of this research work is to examine the impact of capital market institution on Nigerian Economy with particular reference to Nigerian Stock exchange Lagos, the specific objectives of this project work includes:
1. To examine the role of Nigerian capital market on the development of Nigerian economy.
2. To evaluate the economic impact the capital market.
3. To examine the problems encountered by the capital market.
4. To also recommend possible solutions to the problems identified.