IMPACT OF CAPITAL MARKETS ON ECONOMIC DEVELOPMENT OF THE NIGERIAN ECONOMY

Abstract

This project work evaluates and attempts to assess the contribution of capital market activities and economic growth in Nigeria. The project work has examined thoroughly on the role of capital market in economic development of Nigeria, since it contributes to the social economic growth and development of emerging and developed economics. This is made possible through some of the vital roles played, such as channeling resources, promoting reforms to modernize the financial sector, financial intermediation capacity to link deficit to the surplus sector of the economy. It provides the necessary lubricant that keeps turning the wheel of economy. It does not only provide the necessary lubricant that keeps turning the wheel of the economy. But also efficiently allocate these funds of best returns to owners. The objective of this study was Vii empirically analyzes the impacts of the Nigeria capital market on her social economic development. The social economic development was proxy by the .gross domestic product, while the capital market variables considered included market capitalization, total new issues, volume of transaction and total listed equities and government stock. The work also accommodates research methodology based on data research design, source of data collection and the presentation and analysis of data. The chi-square also helps the researcher in testing the variable gathered. It was also found that infrastructural facilities pose a major hindrance on the effectiveness of investment growth in Nigeria economy it was also recommended that infrastructural adequacy should be put in place to curb such hindrance in investing in the capital market.

TABLE OF CONTENTS

Title Page                                                                                          i

Certification                                                                                      ii

Dedication                                                                                        iii

Acknowledgements                                                                          iv

Abstract                                                                                            v

Table of Contents                                                                             vi

Chapter One: Introduction                                                1

1.1    Background to the Study                                                                1

1.2    Statement of Study                                                                          3

1.3    Research Questions                                                                         4

1.4    Objective of the Study                                                                      4      

1.5    Statement of Hypotheses                                                                 5

1.6    Significance of the Study                                                                 6

1.7    Scope of the Study                                                                           6

1.8    Limitations of the Study                                                                  7

1.9    Definition of Terms                                                                          7

Chapter Two: Review of Related Literature                        9

2.1    Introduction                                                                                     9

2.2    Historical Evaluation of the Nigeria Capital Market            9

2.3    The Role of Capital Market in Nigeria                                            13

2.4    The Functions of Nigeria Capital Market                                       15

2.5    Relevance of Capital Market in Infrastructural Development      15

2.6    Instrument Employed to Raise Fund at the Capital Market         16

2.7    Structure and the Major Participant in the Nigeria Capital

Market                                                                                              17

2.8    Regulatory Bodies of the Nigeria Capital Market                          18

2.9    Constituencies of Nigeria Capital Market                                      18

2.10 How to Access the Nigeria Capital Market                                     19

2.11  Capital Market as a Long Term Option for Financing

Infrastructural Development                                                          22

Chapter Three: Research method and Design

3.1    Introduction                                                                                     24

3.2    Research Design                                                                              24

3.3    Description of Population of the Study                                          24

3.4    Sample Size                                                                                      25

3.5    Sampling Technique                                                                        25

3.6    Sources of Data Collection                                                             25

3.7    Method of Data Presentation                                                          26

3.8    Method of Data Analysis                                                                 26

Chapter Four: Data Presentation, Analysis and
Interpretation

4.1    Data Presentation                                                                            28

4.2    Data Analysis                                                                                   28

4.3    Hypotheses Testing                                                                         43

Chapter Five: Summary of Findings, Conclusion and
Recommendations

5.1    Summary of Findings                                                                       47

5.2    Conclusion                                                                                       48

5.3    Recommendations                                                                           49

References                                                                                        51

Appendix                                                                                          53

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The capital market is highly specialized and organized financial market and indeed essential agent of economic growth and development because of its ability to facilitate and mobilize savings and investment. To a great extent, the positive relationship between capital accumulation and real economic growth has long been affirmed in economic theories (Ekundayo, 2012). Success in capital accumulation and mobilization for development varies among nations, on domestic inflows of foreign capital. Therefore, to arrest the menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.
The development of capital market in Nigeria, as in other developing countries, has been induced and fostered by the government. Though, prior to the establishment of stock market in Nigeria, there existed some less formal market arrangement for the operation of the capital market. It has not prominent until the visit of Mr. J.B. Lobynesion in 1959, on the invitation of the federal government, to advice on the role of Central Bank could play in the development of local money and capital market. As a follow up to these, the government commissioned and set up the Barback committee to study and make recommendations on the ways and mean of establishing a stock market in Nigeria as a formal capital market. Stating on the recommendation of the committee, the Lagos Stock Exchange (as it was called then) was set-up in March 1960 and in September 1961, it was incorporated, through the collaborative effort of Central Bank of Nigeria, the business community and industrial development bank (Alile & Alao, 2010). Undoubtedly, potential invisible funds abound in Nigeria, but the overriding consideration in this project will be to examined the roles of the capital market in harnessing and mobilizing these sources to generate growth in the country and consequently, economic development.

1.2   Statement of Problem

There, is abundant evidence that most Nigerian businesses lack long term capital. The business sector has depended mainly on short-terms financing such as overdrafts to finance even long term capital. Based on the maturity matching concepts, such financing is risky. All such firms need to raise an appropriate mix of short and long term capital (Heff, 2009).

Most recent literatures on the Nigeria capital market have recognized the tremendous performance the market has recorded in recent times. However, the 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 the Nigeria economic and development. Aside the social and institutional factors inhibiting the process of economic development in Nigeria, the bottle neck created by the dearth finance to the economy constitutes a major setback to its development. As a result, it is necessary to evaluate the Nigeria market.

1.3   Research Questions

This research shall be guided by the following research questions:

1.     How does the capital market impact on the economic growth and development process in Nigeria?

2.     What is the trend of trading activities on the capital market and economic growth and development?

3.     What is the impact of Securities and Exchange Commission (SEC) as a regulatory body of the Nigeria capital market?

1.4   Objectives of the Study

The objective of this study includes:

1.     To evaluate the performance of the capital market in relation to the economic growth in Nigeria.

2.     To evaluate the operations of the Nigeria capital market.

3.     To examine the impacts of Securities and Exchange Commission (SEC) as a regulatory body of the Nigeria capital market.

1.5   Statement of Hypothesis

The hypothesis that would be tested in the course of this research is stated below as follows:

Hypothesis One

HO:   The capital market operations have not contributed to Nigeria economic growth.

HI:    The capital market operations have contributed to Nigeria economic growth.

Hypothesis Two

HO:   The operations of the capital market do not stimulate economic growth in Nigeria.

HI:    The operations of the capital market stimulate economic growth in Nigeria.

Hypothesis Three

HO:   There is no significance relationship between the Securities and Exchange Commission and the Nigeria capital market.

HI:    There is significance relationship between the Securities and Exchange Commission and the Nigeria capital market.

1.6   Significance of the Study

The study will explore the impact or effectiveness of capital market on Nigeria economic growth. It will contribute to existing literature on the subject matter by investigating empirically the role, which the capital market plays in the economic growth and development of the country.

1.7   Scope of the Study

The scope is a large component with lots of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (the financial sector). This work will not cover all aspect that make up the financial sector, but shall focus only on the capital market and its activities as it impacts on the Nigeria economic growth.

1.8   Limitations of the Study

This study is limited by the following factors.

·                    Access to current data: Most respondent would not want to disclose certain factors about their entity.

·                    Inadequate internet facilities relating to the research work

1.9   Definition of Terms

Capital Market: This is the market for raising or investing long term funds.

Money Market: This is the market which creates opportunities for raising or investing short term funds.

Financial Intermediation: This is the process by which financial intermediaries provide a linkage between surplus units and deficits unit in the economy.

Regulatory: The amounts to the protection of the investing public from deceits, and other unscrupulous practices in the sale of activities.

Capital Market Committee: A committee set up as an advisory and consultative body to serve as forum to deliberate on matters affecting the capital market.

Investigation: Checking of all reports of violations and suspected violations of the securities law.

Investor Protection: Protection of investor’s securities against fraudulent and false claims.

Enforcement: Responsibility of ensuring that participant in the market complies with securities with securities law.

Industrial Loans: These are loan that consist of debenture stock and bonds.

External Relations: The long standing relationship with some international security market organizations.