THE ROLE OF CAPITAL MARKET IN NIGERIA’S FINANCIAL SECTOR (A CASE STUDY OF NIGERIA STOCK EXCHANGE)
ABSTRACTS
This project is focus on the role of Capital Market in Nigeria’s Financial Sector (A case study of Nigeria Stock Exchange). The following objectives were formulated: to examine the roles of capital markets to facilitate economic development. The research design used for the study was survey research and the method of data collection was primary and secondary source as they are gathered through questionnaire administration, internet and journals. A non-probability sampling technique was used to select a sample size of 20 for the study. The findings from the study revealed that: structures of the Nigerian capital market are primary market, secondary market and derivative market and the roles of capital market to facilitate economic development includes: creating a bridge between suppliers of capital users, promoting saving and investments and facilitating efficient allocation of scarce financial resources and the significance of the stock exchange market includes; non-debt cheap capital, economic growth and development and inflow of foreign capital. It was recommended that the Government should introduce a policy that will make it necessary for graduates to learn about the stock market at their final year in school and also collaborate with SEC and NSE to engage in mass enlightenment of the Nigerian populace and the seminar should be organized in the direction for all shareholders educating them on how to transact the business of securities.
TABLE OF CONTENTS
Cover Page – – – – – – – – i
Certification – – – – – – – ii
Dedication – – – – – – – – iii
Acknowledgements – – – – – – – iv
Abstract – – – – – – – – v
Table of Contents – – – – – – – vi
CHAPTER ONE
INTRODUCTION
1.1 Background of the Study – – – – 1
1.2 Statement of the Problem – – – – – 5
1.3 Objectives of the Study – – – – 6
1.4 Research Questions – – – – – 6
1.5 Significance of the Study – – – – 7
1.6 Scope and Limitations of the Study – – – 8
1.7 Organization of the Study – – – – 9
1.8 Operational Definition of Terms – – – 10
CHAPTER TWO
REVIEW OF RELATED LITERATURE
2.1 Concept of Capital Market – – – – – 12
2.1.1 Brief History of Nigerian Capital Market – – – 14
2.1.2 Meaning of Stock Market – – – – – 17
2.1.3 Rationales for establishment of Capital Market in
Nigeria- – – – – – – – – 18
2.2 Structure of the Nigerian Capital Market – – – 19
2.3 Functions of Stock Market – – – – 22
2.4 Significance of Nigeria Stock Market – – – 25
2.5 Functions of Capital Market – – – – – 27
2.6 The role of Capital Markets to Facilitate Economic
Development – – – – – – – – 29
2.7 Problems of the Nigerian Capital Market – – – 33
2.8 Solution to the problems of stock exchange
Market- – – – – – – – – 38
2.9 Prospects for improved performance of the
market – – – – – – – – 42
2.10 Theoretical Framework – – – – – – 44
2.11 Empirical Review – – – – – – – 46
2.12 Summary of Related Literature – – – – 49
2.13 Research Gap – – – – – – – 51
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Research Design – – – – – – – 52
3.2 Area of the Study – – – – – – 52
3.3 Population of the Study – – – – – 52
3.4 Sample and Sampling Techniques – – – – 53
3.5 Source and Nature of Data – – – – – 53
3.6 Instrument and Method of Data Collection – – 54
3.7 Method of Data Analysis – – – – – 54
3.8 Empirical Specification of model – – – – 54
3.9 Ethical Issues – – – – – – –
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
4.1 Presentation of Data – – – – – 56
4.2 Analysis of Data – – – – – – – 60
4.3 Discussion of Findings – – – – – – 66
CHAPTER FIVE
FINDINGS, CONCLUSION AND RECOMMENDATION
5.1 Findings – – – – – – – 70
5.2 Conclusion – – – – – – – 71
5.3 Recommendations – – – – – 71
5.4 Implication of Findings – – – – – – 72
5.5 Contribution to Knowledge – – – – – 73
5.6 Suggestion for further studies – – – – 73
References
Appendices
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The capital market is a subset of the financial system that is involved in the provision of long-term funds for productive use. The capital market drives any economy’s economic growth and development because it is necessary for long term growth capital formation (Osaze, 2009) but evidences from past studies have revealed a growing concern and controversies on the role of the capital markets on economic growth and development.
While some supported a positive link, some other do not find any empirical ecidence to support such conclusion. Nyong (1997) found a negative link but Sudharshan and Rakesh (2011) saw, instead, economic growth playing a role in stock market development. It will be good to note that for every advantage there most exist a disadvantage, so overall even though there exist some lags in the performance of the markets it will be good to note that the market have made some achievements and successes. Thus, results show that a long run relationship exists between capital market (measured by market capitalization total new issues, value of transaction, and total listed equities and government stocks) and economic growth (proxy by GDP) in Nigeria. The evidences from these studies reveal that the activities of the capital market tend to impact positively on Nigerians.
The Nigerian Stock Exchange was founded as the Lagos stock Exchange, on September 15, 1960. There were seven subscribers to the Exchange’s Memorandum of Associaiton:
- R.S. V Scott, representing C. T. Bowring and Co. Nigeria Ltd;
- Chief Theophilus Adebayo Doherty;
- John Holt Ltd;
- Investment Company of Nig. Ltd (ICON);
- Sir, Odumegwu Ojukwu
- Chief Akintola Williams; and
- Alhaji Shebu Bukar
Operations began officially on August 25, 1961 with 19 securities listed for trading. However, informal operations were initially conducted inside the Central Bank building with four firms as market dealers.
Inlaks, John Holt, C. T. Bowing and ICON (Investment Company of Nigeria). The volume for August, 1961, was about 80,500 pounds and it rose to about 250,000 pounds in September of the same year with the bulk of the investments in government securities. In December 1977 it became known as The Nigerian Stock Exchange, with branches established in some of the major commercial cities of the country.
The Nigerian Stock Exchange has been operating an Automated Trading System (ATS) since April 27, 1999, with dealers trading through a computer network.
In 2013, the NSE launched its next generation trading platform, X-Gen, intended to enable electronic trading for the retail and institutional segments. Trading on The Exchange starts at 9.30 a.m. and closes at 2.30 p.m. every Monday – Friday. Market prices, along with an All-Share Index, NSE, and Sector Indices, are published daily in The Stock Exchange Daily Official List, The Nigerian Stock Exchange CAPNET (an intranet facility), newspapers, and on the stock market page of the Reuters Electronic Contributor System. Historical price and performance data is also posted on the NSE website.
In order to encourage foreign investment into Nigeria, the government has abolished legislation preventing the flow of foreign brokers to enlist as dealers on the Nigerian Stock Exchange, and investors of any nationality are free to invest, Nigerian companies are also allowed multiple and cross border listings on foreign markets.
In a bid to promote transparency and trust in the capital market, the NSE reconstituted the Investor’s Protection Fund in 2012. The Fund is mandated to compensate investors who suffer pecuniary loss arising from the revocation or cancellation of the registration of a dealing member; insolvency, bankruptcy or negligence of a dealing member; or defalcation committed by a dealing member or any of its directors, officers, employees or representatives.
1.2 STATEMENT OF THE PROBLEM
The low level of development witnessed in most developing economies’ stock market including Nigeria has resulted in the underperformance of these countries’ economies. Hence, the benefits which could accrue to such nations as a result of having a world class stock market have eluded the Nigerian investors as a result of the backward nature of the economy. This could be attributed to several factors which possibly could determine stock market development. For instance, low level of savings by the populace poses influence on stock market development. Nigerian economy consists of individuals who either consume or save from their meagre income or firms that borrow unconsumed income as loans and invest. It means that whenever individuals and firms save, capital is generated.
The inadequacy and dearth of securities occasioned by all these affects the level of transaction resulting to low volume, value of securities traded as well as stock market capitalization. As a result, the Nigeria capital market which is supposed to be an avenue for sourcing long-term funds to finance long-term projects is not as developed as her foreign counterpart. It has therefore not been able to judiciously perform its primary obligation of meeting long-term capital needs of the deficit sectors through efficient accumulation of capital from the surplus unit of the economy and effectively channel mobilized funds for more economic use (Oke and Adeusi, 2012).
1.3 OBJECTIVES OF THE STUDY
The objectives of the study are as follows
- To examine the structures of the Nigerian capital market.
- To examine the roles of capital markets to facilitate economic development.
- To examine the significance of the stock exchange market.
- To examine the problems of the stock exchange market
- To proffer solutions to the problems of the stock exchange market
1.4 Research Questions
The following research questions were formulated for this study:
- What are the structures of the Nigerian capital market?
- What are the roles of capital markets to facilitate economic development?
- What is the significance of the stock exchange market?
- What are the problems of the stock exchange market?
- What are the solutions to the problems of the stock exchange market?
1.5 SIGNIFICANCE OF THE STUDY
The significance of stock exchange market development throughout the whole world and its immense contributions in economic development cannot be undermined. This study will be of immense benefit to the following groups:
- Academia: The intensified urge to develop stock market has resulted in many researches on the stock market development as well as growth determinants and the likes. This study however will add to existing literatures on this topic as well as a research material for future studies.
- Policy Makers: Government policy makers and regulatory institutions such as Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (NSE) will benefit heavily. It is expected that this study will complement the efforts of the government and policy makers in reviving the Nigerian stock market and restoring confidence of shareholders and other participants in the market especially now that investors and shareholders confidence seems to be eroding.
It will also assist government in knowing the measures and policies to undertake to encourage stock market development, having known what determines its growth and the economic variables which if given serious attention, will improve stock market development and hence economic growth.
1.6 SCOPE AND LIMITATIONS OF THE STUDY
The study centers on the role of capital market in Nigeria’s financial sector (A case study of Nigeria stock exchange)”
The limitations of the study are as follows:
TIME: This is the first limitation that affected the research study a great deal because carrying out the study requires time and one cannot afford to miss lectures and embarks on a journey to the case study. Other limitations are finance and lack of desired cooperation of some of the respondents
1.7 ORGANIZATION OF THE STUDY
This research work is organized into five chapters to achieve the aim and objectives of the study.
Chapter one deals with the introduction of the study, background of the study, statement of the problem, objectives of the study, research questions, significance of the study, scope/limitations of the study, organization of the study and definition of terms.
Chapter two entails all the review of related literature which tends to give theoretical framework of this research work.
Chapter three concentrate on the method used in collecting data required for the study, restatement of research questions, design of the study, area of the study, sample and sampling techniques, instrument/methods for data collection and data analysis techniques.
Chapter four involves data presentation, analysis and interpretation. While Chapter five caps the research with the findings, conclusion and recommendations of the study.
1.8 OPERATIONAL DEFINITION OF KEY TERMS
Capital Market: Is a market where buyers and sellers engage in trade of financial securities like bonds, stocks, etc. The buying/selling is undertaken by participants such as individuals and institutions.
Finance: Is defined as the management of money and includes activities such as investing, borrowing, lending, budgeting, saving, and forecasting.
Stock Exchange: Is a centralized location where the shares of publicly traded companies are bought and sold. Stock exchanges differ from other exchanges because the tradable assets are limited to stocks, bonds and exchange traded products (ETPs)
Financial Institution: Is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments and currency exchange.
Capital Fund: Is the money that lenders and equity holders provide to a business for daily and long-term needs. A company’s capital funding consists of both debt (bonds) and equity (stock). The business uses this money for operating capital.
Bond: Is a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or government).
Equity: Equity represents the value that would be returned to a company’s shareholders if all of the assets were liquidated and all of the company’s debts were paid off.
Debentures: Is a type of bond or other debt instrument that is unsecured by collateral. Since debentures have no collateral backing, debentures must rely on the credit worthiness and reputation of the issuer for support.
Shares: Are units of equity ownership interest in a corporation that exist as a financial asset providing for an equal distribution in any residual profits, if any are declared, in the form of dividends.
Stock: Is a security that represents the ownership of a fraction of a corporation.
