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IMPACT OF INFORMATION
AND COMMUNICATION ON OPERATION OF NIGERIAN STOCK EXCHANGE
CHAPTER ONE
INTRODUCTION
1.1
Background of
the Study
The effect of information
and communication technology (ICT) on the operation of stock markets has been a
subject of debate in recent times. A school of thought led by authors like
Shiller (1989),Summers (1988), Porteba and Summers (1988) would argue that
stock markets have become excessively volatile since the adoption of computer
assisted trading strategies as the latter increase short-term price volatility
and risks. They also argue that very few investors have access to online
trading systems. Few actually own computers and have easy access to the Central
Securities Clearing System. Many investor, they claimed, do not have access to
a system that sends orders to stockbrokers for automated execution.
They also contend that
ICT driven stock market operations are fraught with fraud and manipulation,
which mostly affect individual investors. A case in point relates to the sale
of shares without authorization of the stockholders, a practice that is given
impetus by greed and dishonesty of some market participants.
They further argued that
surveillance problems and the lack of proper enforcement of penalties by the
legal system make the adoption of a fast-paced ICT system dangerous to
investors.
The second school of
thought, which includes authors Fama and French (1988), on the other hand,
argued that information technology have made stock markets more efficient as
attendant stock prices now reflect important information and investors
perception of stocks more swiftly. In their contention, ICT has made the
capital market more efficient by providing all participants with faster and
more effective means of exchanging information. They maintained that new
products and instruments have been made readily available as a result of the
advent of sophisticated ICT. Evidently, stock markets can be more resilient,
possess greater depth and breadth with the intervention of ICT.
It must be observed that
the premises of the above theorizing are capital markets in developed countries.
Would their arguments hold true for the less Developed Countries (LDC)? Which
school of thought would appropriately explain the experiences of the LDCs?
Perhaps the critical questions that need to be addressed would include: Has the
adoption of information technology had a positive or negative impact on the
operation of Nigerian stock exchange? Has ICT transformed the way business is
conducted on the Exchange? Has ICT benefited the Nigeria investor? The plethora
of research questions can go on and on. However, this paper seeks to ascertain
how the adoption of information technology has impacted on stock market
operation indicators and the way business is conducted on the Nigerian Stock
Exchange. A possible area of future research would relate to the benefits of
ICT adoption by the stock market to the Nigeria (individual) investor, which is
not covered in previous studies.
1.2 Statement of Problem
Information and
Communication technology has made a tremendous impact on the Nigerian Stock
Exchange in recent time. This has increased investors confidence due to the
speed and accuracy at which information is disseminated to stakeholders.
But inspite of this
laudable impact of ICT in the operation of Nigeria Stock Exchange, individual
in Nigeria do not still have access to stock market trading online other than
by going through the brokerage station, as against global trend where investors
in other part of the world browse the internet and go for stock market
information available on the webpage in order to have an instant informed
decision about investment i.e., either to buy or sell the share of a particular
firm. These gap dramatically nudged up the overall volume and volatility of
stock market in recent time. As such doubt is expressed to a large extent about
the extent of usage of information and communication technology in the Nigerian
Stock Exchange with particular reference to automated trading system (ATS).
It is against this
background that the subject matter of this research is seen as an empirical problem
worthy of investigation.
1.3 Research Question
In order to evaluate the
impact of ICT in the operation of Nigeria Stock Exchange, the following
research questions were generated:
i. Has the adoption of information
technology had a positive or negative
impact on the operational performance of stock brokers Nigerian stock exchange?
ii. How does ICT affect service delivery in
Nigerian Stock Exchange?
iii. Has ICT transformed the way business is
conducted in Nigeria stock Exchange?
1.4 Objectives of the Study
The main objective of the
study is to assess the impact of information and communication in the operation
of Nigeria Stock Exchange. The specific objectives are to:
i)
Examine whether the adoption of information technology
had a positive or negative impact on the operational performance of stock brokers in Nigerian stock exchange.
ii)
Evaluate the extent of service delivery in relation to
the use of ICT in Nigerian Stock Exchange.
iii)
Find out whether ICT has transformed the way business
is conducted on the Nigerian Stock Exchange.
1.5 Statement of Hypothesis
The following hypotheses
were formulated for the study:
1. H1:
ICT does not enhance the Operational performance of stock Brokers in Nigeria
stock exchange.
H2:
ICT enhances the Operational performance stock brokers in Nigeria stock.
2. H1: ICT does not significantly
enhance efficient service delivery in Nigeria stock exchange.
H2: ICT
significantly enhance efficient service delivery in Nigeria stock exchange.
3. H1: There is no significant
relationship between ICT and the way business is conducted in Nigerian
Stock exchange.
H2: There is a significant relationship between
ICT and the way business is conducted in Nigerian Stock exchange.
1.6 Scope of the Study
The study covers an
empirical investigation on the impact of ICT on the operations of the Nigeria
Stock Exchange. The study cover the identification of the extent of usage of
ICT in the Nigeria Stock Exchange as well as the examination of Automated Trading
System (ATS). The period of the study covers a time from 2002 to 2012.
1.7 Significance of the Study
The study will be
beneficial to individual, corporate organization and students especially as they
may utilize its findings in their different endeavors:
To the individual, the research
will unveil the benefit that could be derived from utilizing the automated
trading system to direct transactions.
To the general public, it
will enhance deep understanding of the electronic operations of the Nigerian stock
exchange via information and communication.
To students and scholars
the study will equally add to the existing knowledge on the impact of ICT on
the operations of Nigeria stock exchange. The study will also be a springboard
to undertake further studies on the subject matter.
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