THE IMPACT OF EQUITY PURCHASE IN THE CAPITAL MARKET (2000-2007)

THE IMPACT OF EQUITY PURCHASE IN THE CAPITAL MARKET (2000-2007), A RESEARCH PROJECT TOPIC ON ACCOUNTING

CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

The role of the capital market in the revolutionisation of the economy cannot be over emphasize especially when one considers the high level of financial intermediation it conducts as regards its role in channeling funds in large amount from surplus areas to deficit areas.

The capital market refers to the market trading in medium and long term financial instrument with maturities which exceeds one year. In other words, it is the market that enables government and companies to raise long term capital with ease by issuing securities. According to Gaumnitz and Duagau, (2002), the capital market is a “complex of institutions and mechanisms through which intermediate funds and long term funds are pooled and made available to businesses, government and individuals and instrument already outstanding are transferred”.

The capital market provides the wherewithal for the growth of the economy and development programme and serves as an indicator of the economy’s liquidity and general performance (Osaze, 2002).

Anyanwu (1999) defined the capital market as a market for the mobilization and utilization of long term funds for development. It can also be defined as that market were medium and long term loan stock are either bought or sold for investment and infrastructural development projects by business and government. The capital market is sometimes referred to as the equity market. This is because the instrument with which the capital market operates is referred to as the equities, which comprises of shares debentures and development stocks etc.

Equity on the other hand is an instrument or documentation evidencing and investment made by a party and constituting a future claim against the former by the latter payable at maturity. Alice and Anao (2000) defined equity or security as documentary evidence of ownership or entitlement to claim upon the assets of the issuing organization which may be a business, firm, government or a quasi government market instruments to be ranked as equities. These equity instruments include commercial papers, short term treasury bills and treasury certificates (Ugorji, 2002).

Capital market includes a whole complete set of institutions and procedures for providing intermediate and long term funds to fund users (Ugorji, 2002). In other words, capital market plays a vital role in capital formation which is necessary for the development of an economy. Hence, capital market is a prime motor that drives an economy on its path to growth and development because it is responsible for long term growth capital formation, (Osaze, 2002).

THE IMPACT OF EQUITY PURCHASE IN THE CAPITAL MARKET (2000-2007), A RESEARCH PROJECT TOPIC ON ACCOUNTING