1.1 BACKGROUND OF THE STUDY
The Nigerian capital market by logical extension has an international and colonial reference just like our political and entire economic life. Following the realization by the colonial masters that inadequate finance or capital was a major independent particularly to the industrial growth and economic development, they started by setting the first commercial Bank in Nigeria in 1892, the central Bank of Nigeria in 1959 and the first merchant Bank in 1960.
These Banks provided only short term funds that is to say that they are money market institutions. The money market is a financial market where short term securities are bought and sold. This means that the securities have maturity period of less than one year. But no meaningful investment can be achieved with the availability of only short term capital. Capital market on the other hand, is the financial market wher short term securities are traded in the capital market is also defined as “a complex of institutions and mechanisms through which intermediate term funds and long-term funds are pooled and made available to business, government and individuals as well as where instruments already outstanding are transferred” (Nwanko, 2002). The capital market therefore, has a maturity period of more than one year.
The money market due to its inability to meet the hopes and aspirations of the investors led to the development of the capital market in Nigeria to cater for medium and long-term funds.
THE CAPITAL MARKTE IN NIGERIA COMPRISES OF THE FOLLOWING INSTITUTIONS:
i. The Nigerian stock exchange
ii. The Nigerian industrial development Bank (NIDB)
iii. The securities and exchange commission (SEC)
iv. The Nigerian Bank for commerce and industry (NBCI)
v. The Nigerian Agricultural and co-operative Bank (NACB)
The stock exchange market is an organized market where stocks, shares debentures, e.t.c are purchased and sold. The market is divided in two sectors. These are the demand and supply sides, there are several institutional participants on both sides. These institutional investors gather resources from large number of subscribers and invest them in the stock market. The stock exchange of the first among equals in institutions that comprises the capital market. It is the wheel on which the capital market revolves and pivot central to the economic growth of a Nation.
It is due to the pivotal and enviable roles played by the stock exchange market to the economic growth of a nation that necessitated this research study. This is because according to Oladele Olashore (2000) “nevertheless, the size of the Nigerian stock exchange is small relative to the size of the economy, when compared with that of the world’s emerging market”. Also according to him (2000) “desoite the changes which have so far taken place in the Nigerian capital market it is still considered as being under developed”.
According to Okoro, S.C(2002) “many profitable investments require that capital be committed for a long period of time. This is at variance with the natural inclination of the average investors who will not like tp part with his savings for a long period. Therefore, by providing opportunity to divestment, stock exchanges allow savers to acquire a financial asset and to sell it quickly and cheaply if they need their savings or want to alter their portfolios. Thus investments are made less risky and more attractive. At the same time companies enjoys permarient access to capital raised through equity and bond issues by facilitating long term more profitable investments, efficient capital markets improve the allocation of capital and enhance prospects for long-term economic growth and development.
In 1999 the Lagos stock exchange act of 1999 established the Lagos stock exchange in Nigeria.
The basis for the establishment of Lagos stock exchange was laid with the publication of the bur bank report in 2002 and it was finally set up on 5th June 2003. In 2005, the Lagos stock exchange with headquarters in Lagos and branches in Kaduna and Port Harcourt. The Lagos stock exchange was in 1975 the only stock exchange in west Africa and sixth in Africa.
The Nigerian stock exchange as one of the organs of the Nigerian capital market is a secondary market generally referred to as the stock exchange and it is the prime operational institution in the capital market. Presently, it has six trading floors located in Lagos, Kaduna, Port Harcourt, Kano, Onitsha and Ibadan and the latest addition at the federal capital territory, Abuja.
There are some bottle necks that hamstrung the orderly development of the Nigeria stock exchange and impeded its ability to generate long-term funds flow- through it. Inadequate number of quoted companies and strict operating rules and regulations in the Nigerian stock exchange market, lack of investible funds by individual investors and poor perception of the Nigerian stock market by off-shore investors in terms of keeping to international financial reporting standards this constraining foreign portfolio flow: inadequate technological known how and dearth of trained man power development in the capital market and finally, the erosion of confidence on the ability of the capital market to mobilize funds for investment purposes and absence of venture capitalist companies.
Increasingly, it would appear that government has begun to recognize what a vibrant stock market has in store for the long term financing of Nigeria’s economic development. This must have informed the setting up of the Odife pariel on capital market reforms with the benefit of hind sight, however, the implementation of the panel’s recommendation on the setting up of a rival stock exchange at Abuja is to say the least of a classical example of how to throw the baby away with the bath water. In taking this line of action, government was under the illusion that all that was competition of free up the capital market to play it’s role of mobilizing long-term capital effectively. Unfortunately, problems rarely lend themselves to such simplistic solutions. While the Abuja stock exchange lasted, it was unable to attract any new company to the exchanges other than some of those already quoted on the Nigerian stock exchange.
1.2 A stock exchange is a place where long-term securities like shares and bonds are traded.
This research study will therefore investigate, examine and evaluate the problems faced by the stock exchange market, their extent and the ways to solving the problems with a view to improving the operations of the stock exchange towards economic growth and development.
1.3 OBJECTIVE OF THE STUDY
Generally objective of this study is fund out in the Nigeria stock exchange plays any role in the growth of the capital market.
1. To examine the impact of the few number of quoted companies and all rules and regulations in the Nigerian stock exchange market.
2. To work out modalities, which will ensure that funds are made available through the stock market by off-shore investors in terms of keeping to international financial reporting standards that have constrained foreign portfolio flow
3. To determine how to make the capital market more active and efficient through technological advancement and trained manpower development.
4. To investigate and suggest how more confidence could be reposed on the capital market by investors and venture capitalist companies.
1.4 RESEARCH QUESTION
The research seeks to find solutions to the following question.
1. How can we examine the impact of the few number of quoted companies and all rules and regulation in the Nigerian stock exchange market.
2. How can we ensure that funds are made available through the stock market by off-shore investors in terms of keeping to international financial reporting standards that have contracted foreign portfolio flow.
3. Why do will determine capital market more active and efficient through technological advancement and trained manpower development.
4. How can we reposed on the capital market by investors and venture capitalist companies.
1.5 STATEMENT OF HYPOTHESIS
HYPOTHESIS (1) ONE
Ho: The Nigerian stock exchange does not play a prominent role in the growth of the capital market.
Hi: The Nigerian stock exchange plays a prominent role in the growth of the capital market.
HYPOTHESIS (2) TWO
Ho: There is no significant effect of the poor development of the stock market on foreign investors.
Hi: There is significant effect of the poor development of the stock market on foreign investors.
1.6 SIGNIFICANCE OF THE STUDY
The study will establish the ways the Nigerian stock exchange assists the country in the growth of it’s capital market.
It will improve the confidence of the investors and venture capitalist companies in the ability of the capital market to provide funds needed for investment purpose in Nigeria.
HYPOTHESIS (3) THREE
Ho: There is no significant contribution of quoted companies to the effective performance of the stock market.
Hi: There is significant contribution of quoted companies to the effective performance of the stock market.
1.7 SCOPE AND LIMITATIONS
The research study is intended to bring light “the role of the Nigerian stock exchange in the economic growth of nation”. It is supposed to cover all the branches including the Headquarters in Lagos. But due to time factor, finance and that the branches are far flung, this research will be limited to the data collected from the Nigeria stock exchange market in Onitsha branch.
But the greatest constraints and limitations came from the difficulties encountered in getting information in this country. This is because of the fear of workers that the information give out by them may be used against the company again, there is always the problem of non-availability of the necessary information due to our poor culture of storing information even in this era of computer.
1.7 DEFINITION OF TERM
Each aspect of economic activity or profession has its own terminologies, which are normally known by those engaged in such field. This aspect of the research has defined some of the common terms used in the stock exchange market.
BULLS: are those who buy shares at N1.00 hoping to sell at say N2.00
BEARS: are those who sell shares today at N1.00 hoping to buy them back tomorrow at N0.95
STOCKBROKER: are those allowed to sell shares on the floor of the stock market.
JOBBERS: those who are allowed to stock of securities.
INVESTORS: a person or an institution that buys stock and shares intending to keep them and profit the interest or dividend paid.
CAPITAL: any form of wealth employed for the production of more wealth.
CAPITAL MOBILIZATION: the process of building up or calling or monies for investment purposes.
CAPITAL FORMATION: this is the process of arranging or organizing funds or monies for the purpose of investment.
INSTRUMENTS: these are means or tools through which money is invested on stock.
INTERMEDIATE: this is the medium of investment.
INVESTMENT: this is an item or commodity on which money is invested with the hope of yielding future benefits in form of interest or dividends.
INSTITUTIONS: these are establishments, foundations, established law or organizations, which invests funds on stocks.
SECURITIES: these are evidence of debts or of property ownership bonds or stocks.