CHAPTER ONE
INTRODUCTION
1.1 Background of the Study
The financial system in any modern economy consists basically of two markets via:
1} The money market
2} The capital market
The money market provides short term finances for project execution, while the capital market perform all the long term functions of buying, selling and borrowing of long term funds.
The capital market is a highly specialized and organized financial market and indeed essential agent of economic growth because of its ability to facilitate and mobilize saving and investment. To a great extent, the positive relationship between capital accumulation and economic growth has long been affirmed in economic theories (Anganwu 1993).
Success in capital accumulation and mobilization for development varies among nations, but is largely dependent on domestic savings and inflows of foreign capital therefore, to arrest the
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menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this, consideration is given to the measure for the development of capital market as an institution for the mobilization of finance from the surplus sector to the deficit sector. The development in the capital market in Nigeria, as in other developing countries has been induced by the government though prior to establishment of stock.
Market in Nigeria, there existed some less formal market arrangement for the operation of capital market. It was not prominent until the visit of Mr. J.B. Lobynesion in 1959, on the invitation of the federal government to advice on the role. Central bank could play in the development of local money and capital market. As a follow up to this, the government commissioned and set up makes recommendation on the ways and means of establishing a stock market in Nigeria as a formal capital market. Acting on the recommendation Lagos stock exchange was established on March 1960, it was incorporated under section 2 cap 37 in September 1961.
With the establishment of central bank of Nigeria in 1959 and establishment of Lagos stock exchange in 1961 the Nigeria stock
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exchange was established in 1979 by an act in 1979. A review was carried out to take care of the low capital formation, the huge amount of currency in circulation which has held outside the banking system, the unsatisfactory demarcation between commercial banks and emerging merchant banks, and the extremely shallow depth of the capital.
Response to the problem mentioned above the government decentralized the stock exchange on the 2nd of December 1977 the memorandum and article of association of the Lagos stock exchange, with branches in Lagos, Kaduna, Port-Harcourt, Yola and now in the Federal capital territories and some other cities.
1.2 Statement of the Problem
There is abundant evidence that more Nigeria business lack long term capita. The business sector has mainly dependent on short term capital likes, overdraft to finance businesses that require long term capital based on the maturity matching concept such financing is risky. All such firms require appropriate mix of short and long term capital (Demirguckunt and Levine 1996).
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Most recent literature on Nigerian capital market have recognized the tremendous performance, the market has recorded in recent times. However, vital role of the capital market in economic growth and development has not been empirically investigated thereby creating a research gap in this area. This study is undertaken to examine the contribution of the capital market in Nigeria economic and development.
Aside the social institutional factor inhibiting the process of economic development in Nigeria, the bottleneck created by the dearth of finance to the economy constitutes a major setback to its development.
At the Nigeria Stock Exchange (NSE) buyers and seller are the same people so the market is no more than a manipulative institution, where corruption and lack of transparency has brought misery to investors. Or how could one describe a situation where market crashed in 2008 with capitalization collapsing from fifteen million to six trillion without anybody lifting a finger? (Etubong 2008). Because of this known deficiency, corruption has permeated the system, there is price fixing and overvaluation of shares. Initial public offers (IPOs)
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are manipulated. Most executive and council members of the exchange stooped so low to collaborate with stock brokers by leaking information thereby manipulating price of shares. As a result, it is necessary to evaluate the Nigerian capital market following these affirmation problems.