IMPACT OF CAPITAL MARKETS ON ECONOMIC DEVELOPMENT OF THE NIGERIAN ECONOMY

CHAPTER ONE

INTRODUCTION

1.1   Background to the Study

The capital market is highly specialized and organized financial market and indeed essential agent of economic growth and development because of its ability to facilitate and mobilize savings and investment. To a great extent, the positive relationship between capital accumulation and real economic growth has long been affirmed in economic theories (Ekundayo, 2012). Success in capital accumulation and mobilization for development varies among nations, on domestic inflows of foreign capital. Therefore, to arrest the menace of the current economic downturn, effort must be geared towards effective resources mobilization. It is in realization of this consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.
The development of capital market in Nigeria, as in other developing countries, has been induced and fostered by the government. Though, prior to the establishment of stock market in Nigeria, there existed some less formal market arrangement for the operation of the capital market. It has not prominent until the visit of Mr. J.B. Lobynesion in 1959, on the invitation of the federal government, to advice on the role of Central Bank could play in the development of local money and capital market. As a follow up to these, the government commissioned and set up the Barback committee to study and make recommendations on the ways and mean of establishing a stock market in Nigeria as a formal capital market. Stating on the recommendation of the committee, the Lagos Stock Exchange (as it was called then) was set-up in March 1960 and in September 1961, it was incorporated, through the collaborative effort of Central Bank of Nigeria, the business community and industrial development bank (Alile & Alao, 2010). Undoubtedly, potential invisible funds abound in Nigeria, but the overriding consideration in this project will be to examined the roles of the capital market in harnessing and mobilizing these sources to generate growth in the country and consequently, economic development.

1.2   Statement of Problem

There, is abundant evidence that most Nigerian businesses lack long term capital. The business sector has depended mainly on short-terms financing such as overdrafts to finance even long term capital. Based on the maturity matching concepts, such financing is risky. All such firms need to raise an appropriate mix of short and long term capital (Heff, 2009).

Most recent literatures on the Nigeria capital market have recognized the tremendous performance the market has recorded in recent times. However, the vital role of the capital market in economic growth and development has not been empirically investigated thereby creating a research gap in this area. This study is undertaken to examine the contribution of the capital market in the Nigeria economic and development. Aside the social and institutional factors inhibiting the process of economic development in Nigeria, the bottle neck created by the dearth finance to the economy constitutes a major setback to its development. As a result, it is necessary to evaluate the Nigeria market.

1.3   Research Questions

This research shall be guided by the following research questions:

1.     How does the capital market impact on the economic growth and development process in Nigeria?

2.     What is the trend of trading activities on the capital market and economic growth and development?

3.     What is the impact of Securities and Exchange Commission (SEC) as a regulatory body of the Nigeria capital market?

1.4   Objectives of the Study

The objective of this study includes:

1.     To evaluate the performance of the capital market in relation to the economic growth in Nigeria.

2.     To evaluate the operations of the Nigeria capital market.

3.     To examine the impacts of Securities and Exchange Commission (SEC) as a regulatory body of the Nigeria capital market.

1.5   Statement of Hypothesis

The hypothesis that would be tested in the course of this research is stated below as follows:

Hypothesis One

HO:   The capital market operations have not contributed to Nigeria economic growth.

HI:    The capital market operations have contributed to Nigeria economic growth.

Hypothesis Two

HO:   The operations of the capital market do not stimulate economic growth in Nigeria.

HI:    The operations of the capital market stimulate economic growth in Nigeria.

Hypothesis Three

HO:   There is no significance relationship between the Securities and Exchange Commission and the Nigeria capital market.

HI:    There is significance relationship between the Securities and Exchange Commission and the Nigeria capital market.

1.6   Significance of the Study

The study will explore the impact or effectiveness of capital market on Nigeria economic growth. It will contribute to existing literature on the subject matter by investigating empirically the role, which the capital market plays in the economic growth and development of the country.

1.7   Scope of the Study

The scope is a large component with lots of diverse and sometimes complex parts; this research work will only look at a particular part of the economy (the financial sector). This work will not cover all aspect that make up the financial sector, but shall focus only on the capital market and its activities as it impacts on the Nigeria economic growth.

1.8   Limitations of the Study

This study is limited by the following factors.

• Access to current data: Most respondent would not want to disclose certain factors about their entity.
• Inadequate internet facilities relating to the research work

1.9   Definition of Terms

Capital Market: This is the market for raising or investing long term funds.

Money Market: This is the market which creates opportunities for raising or investing short term funds.

Financial Intermediation: This is the process by which financial intermediaries provide a linkage between surplus units and deficits unit in the economy.

Regulatory: The amounts to the protection of the investing public from deceits, and other unscrupulous practices in the sale of activities.

Capital Market Committee: A committee set up as an advisory and consultative body to serve as forum to deliberate on matters affecting the capital market.

Investigation: Checking of all reports of violations and suspected violations of the securities law.

Investor Protection: Protection of investor’s securities against fraudulent and false claims.

Enforcement: Responsibility of ensuring that participant in the market complies with securities with securities law.

Industrial Loans: These are loan that consist of debenture stock and bonds.

External Relations: The long standing relationship with some international security market organizations.