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IMPACT
OF NIGERIA CAPITAL MARKET ON ECONOMIC GROWTH
ABSTRACT
This project seeks to examine
the impact of the Nigerian capital market on economic growth from the period of
2002-2010. this study investigate the techniques of bench marking of Nigeria
capital market toward economic development of the nation and discuss the
importance of bench marking to over come perceived weaknesses within the
process. This study intended to find out the operations of the Nigerian capital
market and evaluate the performance of the capital market in relation to the
economic growth in Nigeria. The literature review describes the various
instrument of capital market and the role it has played to towards economic
development. All aspect of this work is very relevant in one way or the other
to Nigeria as a whole and for those who may be interested in carrying out
further study in this topic. Also, data were collected through primary and
secondary source. The primary of source consist distributed questionnaire while
the secondary source are mainly textbooks, internet articles and journals. The methods
of statistic analysis include the use of tables, percentage analysis while
hypotheses formulated were tested using chi-square mathematical techniques. The
study observed that the problems that drags the Nigerian capital market is
clued lack of interest in securities, Nigerians prefer to in vest in real
assets against investment in financial assets should be curbed by deregulation
of security pricing. The evidence from this study also reveals that the
activities in the capital market tend to impact positively on the
economy. It is recommended therefore that the regulatory authority should
initiate policies that would encourage more companies to access the market and
also be more proactive in their surveillance role in order to check sharp practices
which undermine market integrity and erode investors’ confidence. The study
further recommended that, to promote the capital market and stimulate economic
growth and development great emphasis should be made on those things that will
help in booting the market.
TABLE OF
CONTENTS
CHAPTER
ONE
1.0
Introduction
1.1
Background
of the study
1.2
Statement
of the
study
1.3
Objective
of the
study
1.4
Research
questions
1.5
Research
hypothesis
1.6
Significance
of the
study
1.7
Scope
and limitation of the
study
1.8
Definition
of
terms
References
CHAPTER
TWO
2.0
Review of related
literature
2.1
Overview
of capital
market
2.2
Empirical
review
2.3
Theoretical
framework
2.4
Roles of
the capital
market
2.5
Contribution
of the capital market to socio-economic development of
Nigeria
2.6
Analysis
of the Nigerian capital market performance
2.7
Problems
of the Nigerian capital
market
References
CHAPTER
THREE
3.0
Research design and
methodology
3.1
Research
design
3.2
Sources
of
data
3.3
Population
of the
study
3.4
Sample
and sampling procedure
3.5
Validity
and reliability of measuring
instrument
3.6
Instrument/tools
of data
collection
3.7
Methods
of data
analysis
References
CHAPTER
FOUR
4.0
Data presentation and
analysis
4.1
Data presentation, analysis and interpretation
4.2
Test of
hypothesis
CHAPTER
FIVE
5.0
Summary of findings, recommendation and conclusion
5.1
Summary of
findings
5.2
Recommendation
5.3
Conclusion
Bibliography
Appendix
Questionnaires
CHAPTER
ONE
1.0
INTRODUCTION
1.1
BACKGROUND
OF THE STUDY:
The
Nigerian capital market which commenced operation formally in 1962 was
established in 1960 when the Lagos stock exchange were incorporated up-to-date,
the capital market exerts tremendous effect on Nigeria economic growth and
development. The Nigerian capital market instruments are: debt instruments,
preference shares, ordinary shares and derivatives etc. So in absence of
capital market, industrial or economic growth would be hampered.
The
Nigerian capital market is the market for sourcing medium term and long term
funds which is used for economic development and growth. It is also the
financial market which trades in medium and long term financial instruments
(stocks and bonds) with maturity in excess of one year. It is a network of
participants, instruments and facilities which functions basically to
facilitate efficiently the flow of savings into long term investment for socio
economic development.
The
Nigerian capital market is also a network of institutions that perform
functions that are described as a capital market activities, it facilitates the
issuance and secondary trading of long term financial instruments, unlike the
money market which functions basically to provides funds to the governments and
industries to meet their long term capital requirement. Oyiuke (2008)
therefore, the capital market plays a vital role in stimulating industrial as
well as economic growth and development.
The
Nigerian capital market provides the necessary lubricant that keeps turning the
wheel of the economy, it not only provides the funds required for investment
but also efficiently allocates there funds to projects of best returns to fund
owners. This allocative function is critical in determining the overall growth
of the economy. A developed capital market like the one we have encourages
economic growth. It does the various institutions which operate in the market
by giving quantitative and qualitative direction to flow of funds and bringing
about rational allocation of resources Shingad (2004). And by converting financial
assets into productive physical asserts and thus lead to development of
commerce and industry through the private and public sector, thereby inducing
economic growth.
The
Nigerian capital market has opened the flood gate of relatively inexpensive fund
thereby eliminating the possibility of self financing by indigenous
entrepreneur. Such funds may usually be required for expansion or to cushion of
effects of inflation so that business may stay alive, for research and
development of a new product, Nwude (2008). It provides the government with
more effective means of financing its projects in area of infrastructural
development. It has continued to play an important role on production process
and economic performance of Nigeria nation. Nigerian capital market is to
ensure the steady development of the economy, at the apex of the capital market
is the security and exchange commission (SEC) so the capital market functions
through the stock market. A stock market is a market which facilitates the
buying and selling of share stocks, bonds, securities and debentures Shingan
(2004). Perhaps the easiest way to think of capital market activities is to
think in terms of those financial claims that will remain in existence for
about five(5) years or indefinite time, Onyiuke (2008). This work will cover
all the important roles of capital market for a period of 2002 to 2011 on
economic growth of Nigeria
nation.
1.2
STATEMENT
OF THE PROBLEM:
There is
abundant evidence that most Nigerian business lack long term capital. The
business sector has depended mainly on short term financing such as overdrafts
to finance even long term capital. Based on the maturity matching concept such
financing is risky, all such firms need to raise an appropriate mix of short
and long term capital Demirguc-Kunt and Levine (1996).
Most
recent literatures on the Nigeria capital market have recognized 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 Nigerian
economic growth and development. Aside the social and institutional factors
inhibiting the process of economic development in Nigeria, the bottleneck
created by the dearth of finance to the economy constitutes setback to its
development as a result, it is necessary to evaluate the Nigerian capital
market.
Then an
efficient and effective capital market tends to mobilize savings and allocates
a greater proportion to those private sector of the economy like companies
giving due allowance for risk. The allocative function of Nigeria capital
market is critical in determining the overall growth of the economy. For
instance if capital resources are not provided to those economic units
especially industries where demand is growing and which are capable of
increasing production and productivity, the rate of expansion of the economy
will suffer, Onyiuke (2008).
1.3
OBJECTIVE
OF THE STUDY:
The
general objective of this work is to examine the impact made by Nigeria capital
market on the economic growth of Nigerian nation (2002-2011). This study will
attempt to specifically:
i.
Find out
how much money had been mobilized from the Nigerian capital market (NCM) into
different sectors of the Nigeria economy.
ii.
To find
out the proportion of the mobilized fund to the gross domestic product (GDP).
iii.
To find
out the sectors that benefited most from the market.
1.4
RESEARCH
QUESTIONS:
In this
study, the following research questions will be used to determine whether
Nigeria capital market has really made some impact on the economic growth of
the nation since (2002-2011).
i.
Do you
think that Nigerian capital market had be mobilized from 2002-2011?
ii.
What is
the proportion of the total financing from the Nigeria capital market (NCM) to
the gross domestic product?
iii.
Have
other sectors of the economy benefited from the Nigerian capital market
(2002-2011)?
1.5
RESEARCH
HYPOTHESIS:
For the
purposes of getting a useful response for this study, the following hypotheses
are drawn. A hypothesis is a tentative statement about phenomena whose validity
is usually unknown. It’s a statement, but so far is not supported by relevant
information or data. It is often stated to highlight the perceived relationship
between a dependent and an independent variable, Onwumere (2005).
The
followings are thereby formulated;
Ho: That the amount mobilized
from the Nigeria capital market is not significant.
Hi: That the amount
mobilized from the Nigeria capital market is significant.
Ho: The proportion of the
mobilized fund to gross domestic product is not significant.
Hi: The proportion of the
mobilized fund to gross domestic product is significant.
Ho: Nigeria capital market has
not made a significant impact on economic growth of the nation.
Hi: Nigeria capital market
has made a significant impact on economic growth of the nation.
1.6
SIGNIFICANCE
OF THE STUDY:
This
study would try to identify the need for an efficient capital market in the
economy, knowing its immense importance and contribution to the growth and
development of the economy.
The
outcome of the study will help:
a.
The
government in planning and execution of polices.
b.
Capital
market operators in relating their efforts towards guiding the market.
c.
Regulators
of the market in adhering strictly to all its regulator roles.
d.
The
students of finance and the larger public will be making use of any aspect of
information thereof.
This
research work will serve as a stepping stone to other works to be carried out
in this aspect.
1.8
DEFINITION OF TERMS:
CAPITAL:
This
refers to all man-made productive assets i.e. all man-made wealth or goods used
to produce other goods and services. They are goods, which assist in the
production of consumer goods, services and other capital goods examples raw
materials, machines, factory buildings.
CAPITAL MARKET:
This is
a financial market for long term capital. It is a complex institution and
also the mechanism through which intermediate and long term funds are pooled
and made available to business, government and individuals. The capital
market can be grouped into two namely the primary and the secondary
market. The primary market is that for new issues of share and stocks for
the purpose of pooling funds from the investing public excess unto. While
the secondary market are mainly for existing stock that is stocks whose bearers
went to re-coup the funds invested in acquiring such stock or securities found
in the capital market are the stock brokers, Jobbers, dealing clerk, merchant
banks.
ECONOMIC DEVELOPMENT:
According
to Sudden, economic development is the process, which foster the transformation
of a subsistence economy to one, which is modernized and integrated, with high
degree of specialization and exchange. It is also the process of increasing
real per capital income and engineering substantial positive transformation at
the various levels of the economy.
The
positive signals which take place improve the general will being of the people
and ensure sustained or raise the standard of living of the masses.
STOCK:
Equity capital of a company which includes all funds contributed by the owners
as evidence of this ownership consist of stock certificate that, among other
things, show the names, type of shares and type of stock.
STOCK EXCHANGE:
Participants in the stock exchange who execute the
clients orders to buy and sell shares and other instruments on their behalf
usually on commission basis.
JOBBERS:
These are participants in the stock exchange who
buy and sell second hand securities in secondary markets and make their gains
from such transaction. They do not operate on commission basis but they buy up
the securities of companies that were first issued for sales at a later data.
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