ABSTRACT
The modern economy is founded on the
exchange of goods and services produced by various economic units. These units
mobilize resources to affect such production. Capital market all over the world
including the capital market in Nigeria and the development effect on the
economy. One of the most important of such resources is the capital. The
effective allocation of capital resources is essential for the efficient
performance of the economy. This is where capital is involved. This study is
carried out to find the relationship between capital market and the performance
of the economy. Capital market play an intermediate role. This study was
carried out through a chi-square [x2j Test method to test the relationship
between Gross Domestic Product and value transaction in the capital market.
Also, the performance of the capital and the economy. The study found a very
strong association between the performance of the capital and the economy and
concluded by recommending that impediments on the part of proper operation of
the capital market plays its vital role of allocating capital to the most
efficient unit in the economy.
TABLE OF
CONTENTS
Title page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Contents vii
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the
Study 7
1.2 Statement of the Study
7
1.3 Objectives of the
Study 8
1.4 Scope of the Study 9
1.5 Hypothesis of the
Study 10
1.6 Methodology of the
Study 10
1.1 Limitation of the
Study 11
1.8 Definition of Terms 12
CHAPTER TWO
2.0 Introduction 17
2.1 What Capital Market is
all About 18
2.2 History of the Nigeria
Capital Market 22
2.3 Characteristic of the
Nigerian Capital Market 23
2.4 Role of Capital Market
in an Economy 26
2.5 Instrument Used in the
Capital Market 28
2.6 Regulatory Bodies in
the Capital Market 30
2.7 Suppliers and Users of
Fund in the Capital Market 32
2.8 Capital Market and
Economy Development 36
2.9 The Impact of
Structural Adjustment Progamme of the Nigeria Capital Market 41
2.10 Operation of the
Central Security Clearing System in the
Nigeria Capital Market 43
2.11 Evaluation of the
Nigeria Stock Exchange Toward
Financing the Public and
Private Sectors 44
2.12 Problems Facing the
Nigeria Capital Market 46
2.13 Prospect of Nigeria
Capital Market 48
2.14 Methods Used to
Promote the Nigeria 50
Capital Market
CHAPTER THREE
Research Methodology 53
3.0 Introduction 53
3.1 Research Design 53
3.2 Data Collection
Methods 55
3.3 Research Instrument 56
3.3.1 Questionnaire
Administration 56
3.3.2lnterview Method 57
3.4 Statistical Method 57
3.5 Population for the
study 58
3.6 Method of Data
Presentation 58
3.7 Method of Data
Analysis 58
CHAPTER FOUR
Data Presentation,
Analysis and Interpretation 60
4.1 Data Presentation 60
4.2 Data Analysis 61
4.2.1 Questionnaire
Analysis 61
4.3 Test of Hypothesis 73
CHAPTER FIVE
Summary, Conclusion and
Recommendation 79
5.1 Summary Findings 79
5.2 Conclusion 80
5.3 Recommendation 80
References 83
CHAPTER ONE
1.0 INTRODUCTION
The modern economy is essentially based on the exchange
of the products and services of thousands of economic actors. This ranges from
the single one man business to giant conglomerates such as United Africa
Country [UAC] PLC. The exchange mechanism is founded in the specialization of
the productive effort of these actors. This has the beneficial effect of making
available abundant goods and services for various consumers. The oil of this
exchange process is money, which has come to replace the exchange 1w barter. We
can conclude that the smoother the exchange process, the higher the standard of
living given that the economic units can successfully execute their productive
programmes.
The exchange of goods and services is facilitated by market
mechanism where buyer and sellers interact. Economic units that are deficient
in particular goods and services come to the market to exchange their surplus
with other units. The market can thus be seen as an exchange process.
There are various kinds of markets. They range from
commodity market to market for finance. Thus we could talk of cocoa market,
gold market and the oil market. The market for finance can be classified into
money and capital market. The money market usually provides financial
instrument of short-term duration such as treasury bills, treasury certificate,
negotiable certificates of deposits, commercial papers, bank acceptances and
such other funds where tenure do not exceed one year. The capital market on the
other hand provided long-term funds and securities for terms exceeding one
year. It is the market for long-term loans mortgage bonds, preference shares
ordinary shares, federal government bonds and industrial loan.
The capital market is divided into two namely: the primary
market and the secondary markets. The primary market is the market for new
issues for stock and bonds that are sold for the very first term while the
secondary market, under the umbrella of the stock exchange is where stocks and
bonds are subsequently bought and sold. The operation of the secondary market
provides a medium of exchange of ownership of securities. These securities are
claims upon the underlying assets of a business that are written on paper. Such
claims can be debentures or equity claims. The holder of such securities can
sell them and the intending wealth holders are able to buy these securities.
This role creates a market place where purchases and sales of securities can be
made. Secondary capital market brings additional benefit: these are
I.
The facilitation of investment process by providing a market
place in which to conduct transaction effectively and relatively cost
efficient. The investors on these securities are thus guaranteed that they will
have a place to sell their securities if they so decide.
II.
The efficiency of capital allocation through competitive
price mechanism which can contribute to an increased rate of growth for the
overall economy.
III.
The diversification of ownership of productive resources and
the improvement of capital structure of the organization.
The capital
market execution is a function of intermediation by bringing together surplus
capital units and capital deficit units. The smoother the interaction between
these two units the better the economy. This is so because capital deficit
units with either on investment or consumption programme to execute, have ready
access to capital; capital surplus units who have deliberately postponed
consumption are able to earn compensation from the capital which they have
saved. Thus, the capital market ensures that there is no idle capital. The role
of the capital market can be seen from the availability of capital productive effort.
In the past ten years, the Nigeria economy has witnessed a decline in the
standard of living.
This
contraction has become a veritable topic of discussion amongst academics,
industry and government.
After 1970,
the Nigeria economy witnessed an infusion of massive inflow from oil receipts.
Towards the end of the 70s oil prices sky-rocketed to as much as $40 per
barrel. This caused the accumulation of massive external reserves and the
consequent over valuation of the naira by mid 1981, the oil market begin to
collapse. This produce economic cases in Nigeria. In the face of this,
government enunciated various measures to address the problems. such measures
include the economic stabilization Act of 1982 and economic emergency Decree of
1985. These measures dramatically reduced raw material and spare parts
availability resulting in extensive plant closure and substantial drop in
capital utilization. By 1985 real per capital Gross Domestic Product [GDP] and
consumption fell below 1970 levels, thus we see the standard of living going
below that of the previous decade. External services obligation rose to 33.02%
of export receipts. It was against this background that the former Head of
State General IBRAHIM BADAMASI BABAGIDA Administration introduced the
structural Adjustment Programme [SAP] in the year 1970. Some policy adoption
under Structural Adjustment Programme [SAP] includes deregulation of interest
rates, establishment of a market based foreign exchange system and the
pursuance of restrictive. Monetary policy Fiscal measure included in the
privatization and commercialization of several public enterprises acted as a
stimulus on the capital market by increasing the quantity of shares traded on
the stock exchange.
The
developments in’ the economy have clearly affected the capital market and vice
versa. The main thrust of this study is to assess the role of the capital
market in the development of the Nigeria economy and how the capital market has
contributed to the non-performance of the economy by looking at the short
comings of the capital market against the background of the economy as well as
the contribution which the capital market has made in halting the decline.
1.1 BACKGROUND OF THE STUDY
The research
work will attempt to examine the role so far played by the capital market in the
development of the Nigeria economy. And also to examine some major problems
facing the capital market. This work will also examine how some government
policies have affected, positively or negatively the capital market.
1.2 STATEMENT OF THE PROBLEM
The standard
of living within the economy is defined by the productive effort of economic
actors. They are the ones who mobilize productive resources such as land,
labour, entrepreneur and capital. The acquisition of productive resources
depends on the availability of capital. We can identify an implicit
relationship between the capital market availability and the standard of
living. Where the capital market effectively discharge if functions, the effort
of economic actors is enhanced.
The
declining standard of living in Nigeria over the years has been a source of
concern to the managers of the various economies. Various monetary and fiscal
policies have been fashioned to address the problems but results have been
unimpressive. What then has been the role of the capital market in this regard?
How can the operation of the capital market be improved to enhance its
contribution to the Nigeria economy?
1.3 OBJECTIVE OF THE STUDY
This study
will examine the relationship between Gross Dome stic Product [GDP] and the
transaction in the capital market. An attempt will be to examine the effect of
Structural Adjustment Programme [SAP] introduce by the government on the
capital market. This study will also examine the development of the capital
market against the background of the performance of the economy. Other objectives
of this study are to identifying the
problems confronting the capital market and proffering solutions to it. it will
also seek to identify developments in the capital that can be incorporated in
the Nigeria Capital Market.
1.4 SCOPE OF THE STUDY
The scope of the study lies in the fact that the state of the
economy touches the lives of all. The standard of living has significance of
the stability of the policy. Where an economy is persistently performing
poorly, to enhance the state of the economy is of almost importance. The study
of the capital market and its effect on the economy can assist policy makers in
the effective management of the economy. Economic managers should be able to
see how the efficient operations of the capital market by discharge of it
intermediate functions can accelerate economic activities hence, the standard
of living. As this study goes a long way to throw more light on the capital
market and its functions, its hoped that it will still awareness on the readers
and the suggestions put forward considered.
1.5 HYPOTHESIS OF THE STUDY
The data
collected will be analyzed and the following proposed hypothesis would be
tested for: Null Hypothesis [Ho]: That a positive relationship does not exist
between Gross Domestic Product [GDP] and value of transaction in the capital
market.
Alternative
Hypothesis [Hi]: That a positive relationship exists between Gross Domestic
Product and value of transaction in the capital market.
1.6 METHODOLOGY OF THE STUDY
In the
study, the method of data collection is based on primary, secondary sources,
the primary source are the data collected directly for the purpose of the
research work. While the secondary data are mainly deal with text books,
magazine and questionnaires. The chi-square [X2] method will be used in testing
the hypothesis.
1.7 LIMITATION OF THE STUDY
Due to the
geographical scope of this study, which is Nigeria, the necessary data is
collected from both the primary and secondary sources. The state of the economy
being a culmination of the effect of several variation since independence:
isolating a time frame of ten year and focusing on the capital market must
essentially limit the conclusions that can be draw.
The
researcher is also faced with the problems of financial constraints. And as it
is known, researcher work such as this require finance to enable the researcher
travel far and near made to sources. For the current and accurate data, but due
to the pro1em of financial, the major aim of this researcher may the defeated.
Furthermore,
the researcher is conducted within a crowded academic programme. When the
researcher has to attend to other compelling academic demand.
1.8 DEFINITION OF TERMS
I. Gross Domestic. Product [GDPj; This is the value expressed
in monetary terms of goods and services produced within the national economic
in a period usually one year.
II. Number of Listed Securities: This is the total number of
corporate bodies that have issued shares to the investing public dully approved
by securities and exchange commission [SEC] and traded on the floor of the
stock exchange.
III. Turnover Value of Securities: This is the volume of
business in a security or the entire market in monetary value; usually the naira,
if turn over on the exchange is reported at say l5million share a day, the turn
over value is the closing price of each security multiplied by the number of
securities traded or sold that day.
IV. Shares: These are security instruments indicating ownership
in a business organization. There are two major types of shares they are
ordinary and preference shares.
a) Ordinary Shares:
Constitute the ownership capital of a company contributed by the owners and
firm the important part of the company’s capital. Ordinary share holder reaps
the greatest reward. If the company dies well and carry the great test risk if
it fails.
b) Preference Share are in
Form of Hybrid: Security between ordinary shares and debentures and are often issued
as an alternative to debt when the company pay no tax. In other words preference
share have the features of both debenture and equity.
[iv] Market
Capitalization: This is the value of a firm as determined by the market price of its issued and
outstanding common stock.
V. Pond: 1hese are securities in firm of a promissory note obligating
the issue to pay principal amount and a fixed interest rate at a specified time
and interval.
VI. Secondary Market: This is the market where already
existing securities are bought and sold. This market operates after an initial
issue has been completed.
VII. Privatization and Commercialization: Privatization
refers to the reduction or total withdrawal of public sector intervention in
economic activities. Commercialization on the other hand, refers to the
reorganization of a public enterprise in such a way as operate as profit making
commercial ventures without subvention from the government even though
government still retains its full or part ownership.
VIII. Barter: This is an old system of trade which was done
by the exchange of goods or services without the use of money.
IX. Treasury Bills: These are money market [short term]
securities issued by the federal government of Nigeria. They are sold at a
discount, mature within 9Odays of the data issue, and default free.
X. Capital Formation: Capital is formed when some resources
available in the current period are devoted to the creation of intermediate
goods or to the filling up of inventories of final goods which are not intended
to be consumed during the periods.
XI. Capital Market Deregulation: A policy of removing the
pricing securities from a regulated agency of the government to market forces
via the issuing houses and does not mean absence of regulation in the market
place.
XII. Offer: It is the price at which a stock broker is
willing to sell a security on behalf of the client.
XIII. Rate of Inflation: This is the rate at which the
exchange level of money prices rises within a year against the present period.
XIV. Per Capital Income: This is the Gross Domestic Product
divided by the population in any year.
XV. Unemployment: This means the number of citizens who are
willing and able to work but are unable to find the jobs.
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