TABLE OF CONTENTS
Title Page i
Approval Page ii
Certification iii
Dedication iv
Acknowledgements v
Abstract vi
List of tables vii
CHAPTER ONE: INTRODUCTION
1.1
Background of the study
1
1.2
Statement of the problem 2
1.3 Objectives
of the Study
3
1.4 Research Questions 4
1.5 Research Hypothesis 5
1.6 Significance of the study 7
1.7 Scope of the study 8 1.8 Operational and Definition of term 9
1.9
References
CHAPTER TWO: REVIEW OF RELATED
LITERATURE
2.1 Introduction
10
2.2 Meaning of Capital Market 11
2.3 Characteristics of well Functioning Capital Market 12
2.4 The Role of Capital Market in an Economy 13
2.5 Capital Formation and Economic Growth Process 14
2.6 Sources of Capital Formation 15
2.7 Overview of the Nigeria Financial system 16
2.8 Capital Market and Money Market Distinguished 17
2.9 Historical Development of the Nigerian Capital Market 18
2.10 Instruments
or Securities that are traded in the Nigeria Capital Market 19
2.10.1 Fixed
Income Securities 20
2.10.2 Equities
21
2.10.2.1 Common
Stock 22
2.10.2.2 Preferred
Stock 23
2.10.2.3 Derivatives 24
2.10.3.1 Warrants 25
2.10.3.2
Call Options 26
2.10.3.3 Put
Options 27
2.10.3.4 Futures 28
2.11 Constituencies
of and Major Participants in Nigeria Capital Market 29
2.11.1 Funds
Providers 30
2.11.2 Users
of Funds 31
2.11.3 Intermediaries/Market Operations 32
2.11.4 Regulators
33
2.12 Operations in the Nigeria (Capital Market 34
2.12.1 Stockbrokers/Dealers 35
2.12.2 The
Jobber 36
2.12.3 Investment
Banks 37
2.12.4 Issuing
Housing 38
2.12.5 Share
Registrars 39
2.13 The Nigeria Stock Exchange (NSE) 40
2.13.1 Overview
41
2.13.2 Functions of the Nigeria Stock Exchange 42
2.13.3 Rules and Regulations of the Nigeria Stock Exchange 43
2.13.4 Membership and Organisation of the NSE 44
2.13.5 Pricing of Securities at the NSE 45
2.13.6 Stock Price Movement at the NSE 46
2.13.7 Trading System of the NSE 47
2.13.8 Cleaning Delivery and Settlement System of the NSE 48
2.14 Investments Regulations in the Nigeria Capital Market 49
12.14.1 Introduction 50
12.14.2 The Securities and Exchange Commission (SEC) 51
2.14.2.1 Functions of Securities and Exchange Commission 52
2.14.2.2 SEC and Development of the Nigeria Capital Market 53
2.14.2.3 Regulatory Tools of Securities and Exchange Commission 54
2.14.3 Last Performance of the Capital Market Empirical Evidence 55
2.14.4 Process of Capital Mobilisation in the Nigeria Capital Market 56
2.14.5 Modalities of Stock Market Quotation 57
2.14.6 Listing
Requirement 58
2.14.7 Methods of Fund Raising in the Nigerian Capital Market 59
2.14.8 Approval
Required 60
2.14.9 Professionals Involved in the Floatation of Securities 61
2.14.10 Benefits of Public Quotation 62
2.14.11 Some Common Problems Associated with Stock Holding 63
2.15 Trend in Nigerian Capital Market Performance (1986-2006) 64
References
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research
Design 65
3.2 Specification
of Models 66
3.3
Sources of Data 67
3.4 Techniques
of Analysis 68
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS
4.1 Data
Presentation 73
4.2 Data
Analysis 74
4.3 Regression Results and the Stated Hypothesis 75
CHAPTER FIVE: SUMMARY OF FINDINGS,
CONCLUSION AND RECOMMENDATION
5.1 Summary
of findings 76
5.2 Conclusion 77
5.3 Recommendation 78
5.4 Suggestion of Further Study/Research 79
Bibliography
Appendix I
Appendix
II
LIST OF TABLE
Table 2.1: Market Capitalization (1986 – 2006) 62
Table 2.2: Growth in the Number of Listed Security (1990 – 2006)63
Table
4.1: Yearly: GFCF, GDP, MC, LS, (1986 – 2006) 74
Table 4.2: Natural Log of Table 4.1 75
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE
STUDY
The capital market is a financial market
that provides facilities for mobilizing and dealings in long-term funds for
economic growth and development. Wilkinson (2007) defines capital market as
“any place or system where the requirements of business enterprises and
public authorities or governments for medium and long-term capital funds can be
met”. It is the market in which corporate equity and long term debt
securities that is shares and bond (those maturing in more than one year) are
issued and traded.
Ajie (2002) is of the view, “that
pivotal role of the capital market in any economy could have been dispensed
with, if a firm or even an individual for that matter could operate in a
financial vacuum”. As a matter of fact, it is because firms for example,
operate in close contacts with various financial intermediaries and markets
that they are afforded not only the mechanism through which their idle funds
can be invested but also one that is capable of satisfying their needs for
additional funds.
As observed by Okereke-Onyiuke (2000),
raising funds from the Capital Market makes possible among others, the
construction of factories, offices, buildings, highways, bridges and the
acquisition of machineries. This opportunity which the Capital Market offers facilitates
capital mobilization and allocation among several competing activities.
In theory,
Capital Markets are intended to provide investors and borrowers with a wide
range of trading and investment vehicles and to better mobilize and allocate a
country’s financial resources and support economic growth. This market brings
together all the providers and users of capital. Buying stock allows investors
to gain an equity interest in the company and become part owner. When investors
buy bonds, they essentially loan money to the company or government that issued
the bond and become creditors of that issuer. The market also provides them
with new and more varied saving vehicles as alternative to bank deposit. For
borrowers capital markets provide access to more funds for expansion which can
help in economic growth. Levine and Zervos (1998) are of the opinion that well
functioning capital market, along with well designed institution and regulatory
system, foster economic growth through private initiatives.
There is
empirical evidence strongly suggesting that well functioning capital market
promote long-run economic growth. In particular, Levine and Zervos (1998) find
that indicators of capital market performance such as market capitalization,
turnover, growth in the number of listed securities, and so on are correlated
with economic growth and its sources – total factor productivity growth and
capital formation.
In the
recent past, capital market performance has received increased attention among
governments and development finance institutions, with emerging market accounting
for a growing share of the worldwide boom in the capital markets. Countries at
different levels of development are promoting the performance of their capital
markets with the expectation that these efforts will pay off in terms of faster
economic growth.
In Nigeria,
the role of the capital market in economic growth of the country has continued
to attract increased attention from the government and market practitioners. Al-Faki (2008), emphasizes that “the
Nigerian capital market has experienced considerable growth in the last decade.
In the last year alone(2007), the Nigerian Stock Exchange all-share index has
almost doubled to 51,000 points, and market turnover has also increased”.
According to him, the factors responsible for this growth of market are
firstly, public enlightenment programmes that the Commission carries out
periodically to reach and enlighten the public all over the country. Other
factors are the reduction of the cost of transaction which has enhanced
competition in the Nigerian capital market. The Commission, in collaboration
with other stakeholders, has also continued with the efforts aimed at promoting
the reactivation of the bond market in Nigeria.
According
to Wilkinson (2007), “deregulation is defined as dismantling or abolition
of state intervention in economic matters with the purpose of reducing the
influence of the state in the economy, abolishing bureaucratic obstacles and
legal regulations”.
The
deregulation of the Nigerian economy started with the introduction of the Structural
Adjustment Programme (SAP) in July 1986 and since then, conscious efforts are
made regularly to put in place new policies and where necessary, fine tune
existing ones to ensure rapid and sustainable economic growth of the country;
emphasizes reliance on the country’s natural resources (Nigeria, 1986).
As observed by Okereke-Onyiuke (2000),
properly articulated and implemented, these government reforms are bound to
improve the performance of the Nigerian capital market as a vehicle for
increased capital formation thereby leading to rapid economic growth of the
country”. This improvement would help the capital market’s ability to
mobilize savings, attract new listing and liquidity through increased trading
activities (turnover).
Therefore, this study attempts an
assessment of the performance of the Capital Market in the deregulated Nigerian
economy and covers the period 1986-2006.
1.2 STATEMENT OF THE PROBLEM
A capital market like Nigeria’s is
bedevilled with a lot of problems that make exact measurement of its impact on
various aspects of the economy quite challenging. Some economic analysts like
Okigbo Report(1986) and Odife Report(1996) have observed that the Nigerian
Capital Market has performed below expectations as a purveyor of cheap and stable
funds for Nigeria’s economic growth due to its underdevelopment, which has
impeded long-term funds flow through it. They argue that the performance of the
Nigerian Capital Market as a source of long-term financing of Nigeria’s
economic growth is inhibited by among other things; pervasive poverty that has
impacted adversely on the saving culture; poor partnership spirit of Nigerians
that has inhibited the development of public limited companies; poor perception
of the market by offshore investors; low public awareness of the benefits of
investing in the Capital Market; poor dissemination; few number of trading
instruments; low market capitalization; high transaction costs in the market;
bad corporate governance among others
The need to eliminate these
observed performance inhibitors and theref
