EFFECT OF STOCK PRICE FLUCTUATION ON FOREIGN DIRECT INVESTMENT IN NIGERIA (1980-2015)

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The slow spate of development in the developing countries is usually traceable to inadequate resources to speed up economic growth and development. Saving in this part of the world is usually less than the investment needs which have had far reaching negative effects on major key players in economy like the Nigerian capital market and the resulting effect of low foreign investment. Most economies have resorted to foreign borrowings while others geared efforts toward attracting foreign contributions/assistance to stimulate development. Hence, the importance of foreign investment either by private or public agencies in promoting growth and development in developing countries cannot be overemphasized. Foreign investment is expected to serve as a means of complementing Nigeria’s domestic resources so as to ensure development and improve the standard of living of the people. In essence, the purpose of foreign investments is to complement indigenous efforts in boosting the economy. Specifically, foreign direct investment may be defined as a situation whereby the concern of the investing countries is to exercise control over the assets created in the capital importing countries by means of that investment. Also, foreign public investments are investments by governmental entities/organizations in another country. It is generally recognized that government in developing economies have not only directed efforts to creating enabling environment for business to grow but also tried to create attractive business environment for foreigners to participate. Achievement of the above objective culminated the establishment of the Lagos Stock Exchange which was registered in 1959 and fully incorporated on 1960 and started operation on 1961. It was later transformed to the Nigerian Stock Exchange in 1977 to pave way for conduct of capital market activities such as overseeing and stock price fluctuation. Capital market hence provides a medium for continuous attraction and operation of foreign capital for development of Nigerian economies. It is a paradox however, that despite the hype of foreign public and private investments in Nigeria, the country has not witnessed a reasonable growth and development traceable to its capital market. As a matter of fact, some analysts are of the opinion that the role of capital market as a veritable channel for foreign direct investment is yet to be fully appreciated.

A number of studies have been carried out on the contribution of foreign direct investment on Nigerian economic development. Testing for such impact is essentially a subject of empirical study. The relevant questions now are: Does foreign direct investment contributes to the development of capital market in Nigeria? Is foreign direct investment a significant factor in measuring development of Nigerian capital market? Are there any efforts for proper incentives and better social environmental conditions to put in place in order to set the stage for stock price fluctuation in Nigeria? These research questions are the sources of inspiration for this write up. The rest of the paper is divided into three (3) segments; which are: literature review, method and material and results and discussions.

STATEMENT  OF THE GENERAL PROBLEM

The poor rate of foreign and domestic investment in Nigeria as a result high stock price instability has called for serious deliberations on improving it as it has negatively affected the economic growth and development of Nigeria. The current economic recession may have been the consequence of the current low level of both local and foreign direct investment in Nigeria. in other to enhance economic growth and development all hands must be on deck in ensuring  reasonably stable stock prices in the Nigerian capital market which happens to be one of the principal players in the economy of the country.

AIMS AND OBJECTIVES OF THE STUDY

The major aim of the study is to examine the effect of stock price fluctuation on foreign direct investment in Nigeria. Other specific objectives of the study include;

1. To examine the determinants of stock price development in Nigeria.
2. To examine the determinants of stock price fluctuations on Nigerian economy.
3. To assess the relationship between stock price fluctuation of foreign direct investment in Nigeria.
4. To examine the importance of adequate foreign direct investment on Nigerian economy.
5. To recommend ways of improving foreign direct investment in Nigeria.

RESEARCH QUESTIONS

1. What is the effect of stock price fluctuation on foreign direct investment?
2. What are the determinants of stock price development in Nigeria?
3. What are the determinants of stock price fluctuations on Nigerian economy?
4. What is the relationship between stock price fluctuations of foreign direct investment in Nigeria?
5. What is the importance of adequate foreign direct investment on Nigerian economy?
6. What are the ways of improving foreign direct investment in Nigeria?

RESEARCH HYPOTHESIS

H0: There is no significant effect of stock price fluctuation on foreign direct investment

H1: There is a significant effect of stock price fluctuation on foreign direct investment

SIGNIFICANCE OF THE STUDY

The study would be of immense importance to the development and growth of foreign direct investment on the Nigerian economy. The study would also be of immense importance to students, researchers and scholars who are interested in developing further study on the subject matter.