THE CAPITAL MARKET AND ITS IMPACTS ON THE NIGERIAN ECONOMY (EMPHASIS ON THE STOCK EXCHANGE)

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This work is designed to critical evaluate the impact of capital market in Nigerian economy. The researcher investigated into operations, methods, regulations of the Exchange. He also investigated into the strategies for mobilization of funds towards facilitating capital formation as well as developing and exploiting policy options to enhance operational efficiency and effectiveness of the capital market. The study reveals, among other things that some listed companies have been flouting their listing requirements and also Report of Forensic Audit of Nigerian Stock Exchange carried out between 14-18 September 2009 by KPMG, raised allegations that suggests that the affairs of the Nigerian Stock Exchange ‘NSE’ may have been managed in a manner that is detrimental to the interest of the investing public. In carrying out the survey the researcher made use of questionnaires and documentary sources in obtaining relevant information. The statistical design and analysis used in the study is the percentage ratio and tested with chi-square distribution.

                     TABLE OF CONTENTS

Title…..…………………………………………………………….i

Dedication..………………………………………………………ii

Certification …………………………………………………….iii

Approval…………………………………………………………..iv     

Acknowledgement ………………………………………………v

Abstract…………………………………………………………..vi

Table of Contents……………………………………………….vii

CHAPTER ONE

INTRODUCTION

1.1 Background of study……………………………………….1                                    

1.2 Statement of Problems……………………………………..8             

1.3 Objective of the Study………………………………………9

1.4 Research Questions………………………………………..10

1.5 Hypothesis formulation……………………………………11

1.6 Significance of the Study…………………………………12

1.7 Scope and Limitation of the Study……………………..12

1.8 Historical Background of the firm under study……..14

1.9 Definition of Terms…………………………………………16

     References…………………………………………………….18

CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 The Capital Formulation Process………………………20

2.2. The Securities, and Exchange Commission (SEC)………21

2.3 The role of the SEC………………………………………………22

2.4 The structure and role of Nigerian Capital Market………23

2.5 The Method of raising finances in capital market……….25

2.6 Legal framework governing the operation of the capital      

      Market…………………………………………………………….. 27

2.7 Call-over pricing mechanism………………………………… 29

2.8 Clearing, delivery and settlement…………………………….31

2.9 Second-tier securities market (SSM)………………………..32

2.9.1 Listing requirements of the SSM…………………………..33

2.10 Nigerian Stock Exchange and Banking Sector…………..34

2.11Evaluation of the Performance of Nigerian Stock Exchange

       References…………………………………………………………50

 CHAPTER THREE

 RESEARCH DESIGN AND METHODOLOGY

3.1 Research design…………………………………………………..52

3.2 Sources of Data……………………………………………………52

3.2.1 Primary Data……………………………………………………52

3.2.2 Secondary Data…………………………………………………53

3.3 Sample size and sampling techniques………………………53

3.4 Method of data Collection………………………………………54

3.5 Description of Research Instrument…………………………54

3.6 Validation of Research Instruments…………………………55

3.7 Method of Data Analysis/techniques……………………….55

      Reference…………………………………………………………..56

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.1 Data Presentation and Analysis………………………………57

4.2 Testing of Hypothesis……………………………………………68

CHAPTER FIVE

SUMMARY OF FINDINGS, RECOMMENDATIONS AND CONCLUSIONS

5.1 Summary of findings…………………………………………….77

5.2 Recommendations………………………………………………..81

5.3 Conclusion…………………………………………………………84

     Bibliography………………………………………………………..85

     Appendixes………………………………………………………….88

                               CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

According to A.R and H.I Alile (1986:5), the Nigerian economy in the 1960s was economically and politically dominated by imperialists, Nigerians have since after independence assumed responsibility of piloting the affairs of the economy towards the attainment of high level of economic growth. This has required greater needs for efficient financial markets, providing medium of exchange which promotes specialization and mobilization of savings from the surplus unit (original lenders, this includes depositors) and channeling them into the deficit unit (the borrowers) of the economy for productive investment which would enhance the productive capacity, overall output and employment.

Towards this end, there is a grater need for growth and development not only politically but also economically, but the resources to attain such desired objective are not readily available. It is in recognition of these obvious problems that Nigerian Stock Exchange (hereafter referred to as ‘NSE’ or ‘the Exchange) has just emerged to complement the effort of the government in mobilizing the long-term investment funds for the nations growing companies and creation of investment out-lets.

 Chuks Okongwu (1986:3) in his book ‘the Nigerian Economy’ defined Stock Exchange as a place where securities such as bonds stocks and shares of varying types are traded openly. It deals on “Existing” rather than “New” securities. Securities are documentary evidence of ownership or entitlement to claim upon the assets of the issuing entity, or quasi- government institution.

 Olawale Adedipe (2006:21) also stipulated that the Stock Exchange may also be described as an institution which is responsible for efficient allocation of available capital funds to the diverse users in the economy. The ready marketability feature which the stock exchange bestows on listed securities minimizes any problem which the prospective investor would have had, thus facilitating a free flow of funds into productive uses. Such marketability has great impact for the individual saver, the investor, or fund user as well as the nation as a whole, thus, the relevance of the stock exchange to the capital formation and investment process and ultimately to the promotion of individual and national well being leads to its Obvious recognition as a vital strategy for promoting economic development.

According to information’s from Nigerian Stock Exchange website http//www.nigerianstockexchange.com/listing.jsp, the Nigerian stock exchange has been in operations for over five decades and precisely it is 50 years of age this year. This length of time is ample enough to critically asses its operations in terms of achievements and failures towards the economic development of the nation (Nigeria). The Nigerian Stock

Exchange was established in 1960 as the Lagos Stock Exchange. In December 1977 it became The Nigerian Stock Exchange, with branches established in some of the major commercial cities of the country. At present, there are six branches of The Nigerian Stock Exchange. Each branch has a trading floor. The branch in Lagos was opened in 1961; Kaduna, 1978; Port Harcourt, 1980; Kano, 1989; Onitsha, February 1990; and Ibadan August 1990; Abuja, October 1999 and Yola, April 2002. Lagos is the Head Office of The Exchange. An office has just been opened in Abuja.
Table1.1

The Exchange started operations in 1961 with 19 securities listed for trading. In 1999 there are 262 securities listed on the Exchange, made up of 11 Government Stocks, 49 Industrial loan (Debenture/Preference) Stocks and 194 Equity / ordinary Shares of Companies.

According to THE PUNCH newspaper (10th Jan. 2011), Nigerian Stock Exchange has a total market capitalization of approximately N8.361 trillion, as at January 10, 2011. Most of the listed companies have foreign/multinational affiliations and represent a cross-section of the economy, ranging from agriculture, manufacturing to services. The market has in place a tested network of Stockbrokerage Firms, Issuing Houses (commercial banks), practicing corporate law firms and over 50 quality firms of auditors and reporting accountants (most with international links). The Stock Exchange and most of the nation’s stock broking firms and issuing houses are staffed with creative financial engineers that can compete anywhere in the World. Therefore, the market has in place a network of intermediating organizations that can effectively and creditably meet the challenges and growing needs of investors in Nigerian.
Integrity: is the watchword of The Stock Exchange. Market operators subscribe to the code “Our word is our bond”. Thus, public trust in the Nigerian stock market has grown tremendously, with about three million individual investors and hundreds of institutional investors (including foreigners who own about 47% of the quoted companies) using the facilities of The Exchange. The Stock Exchange’s 50-year history is not devoid of fraud, shocks, scandals or insider dealings.

THE CAPITAL MARKET AND ITS IMPACTS ON THE NIGERIAN ECONOMY (EMPHASIS ON THE STOCK EXCHANGE)