ABSTRACT
This study examines the effect of capital market on Nigerian economy. This study specifically examines the effect of market capitalization, all share index, and total value of shares traded on Nigerian economy proxied by real gross domestic product. The study adopted ex post facto research design. A time series data from 1985 to 2017 were collected from CBN statistical bulletin 2017 and used for the econometric analysis. The econometric analysis techniques used for this study was ordinary least square with double-log multiple regression model. The Econometrics Views (EViews) version 8.0 was used for the analysis. Generally, the result indicates that capital market has significant effect on Nigerian economy. To be specific, the result indicates that market capitalization and all share index respectively has positive and significant effect on Nigerian economy. While total value of share traded has positive but statistically insignificant effect on Nigerian economy. The study recommends among other things that the government should design and implement policies that will increase the market capitalization, which will in turn increase economic growth.
TABLE OF CONTENTS
Title Page i
Declaration ii
Certification iii
Acknowledgements iv
Dedication v
Table of Content vi
L ist of Tables ix
Abstract x
CHAPTER
ONE
INTRODUCTION
1.1
Background to the study 1
1.2
Statement of the problem 4
1.3
Objectives of the study 5
1.4
Research questions 6
1.5
Research hypotheses 6
1.6
Scope of the study 6
1.7
Significance of the study 7
CHAPTER
TWO
LITERATURE
REVIEW
2.1
Conceptual review 8
2.1.1
The roles of capital market 11
2.1.2
Challenges of the Nigerian capital
market 12
2.1.3 Some Capital Market Performance Indicators
13
2.1.3.1
Market capitalization 13
2.1.3.2
All share index 13
2.1.3.3
Total value of stock traded 13
2.1.4
Overview of the Nigerian capital market 14
2.1.5 Reasons for the establishment of the Nigerian
capital market 14
2.1.6
The Nigerian security and exchange commission 15
2.1.7
The Nigerian stock exchange 17
2.1.8
Functions of Nigerian stock exchange 18
2.1.9
Economic growth 18
2.2 THEORITICAL FRAMEWORK 19
2.2.1
Financial liberalization theory 19
2.2.2
Endogenous growth theory 20
2.2.3
Modern portfolio theory 20
2.3
EMPIRICAL REVIEW 21
CHAPTER
THREE
RESEARCH
METHODOLOGY
3.1
Research design 28
3.2
Scope of the study 28
3.3
Nature and source of data 28
3.4
Model specification 28
3.4.1
Description of model variables 30
3.4.1.1
Dependent variable 30
3.4.1.2
Independent variables 30
3.5 Data analysis method 30
CHAPTER
FOUR
DATA
PRESENTATION ,ANALYSIS,AND INTERPRETATION OF RESULTS
4.1
Data presentation 32
4.2
Data analysis and interpretation 33
4.2.1
Descriptive analysis 33
4.3 Inferential statistics and test of
hypotheses 35
CHAPTER
FIVE
SUMMARY
OF FINDINGS ,CONCLUSION , AND
RECOMMENDATIONS
5.1
Summary of findings 40
5.2
Conclusion
40
5.3
Recommendations 41
5.4
Contribution to knowledge 42
REFERENCES
APPENDIX
LIST OF TABLES
Table 4.1: Data
Presentation 32
Table 4.2: Descriptive
Statistics 33
Table 4.3: Regression
Estimates for the Effect of Capital
Market on Nigerian Economic
growth 35
CHAPTER
1
1.1 Background to the Study
Considerable
responds have been given to the capital market in finance and economics
empirical studies. Yadirichukwu, & Chigbu (2014) relate
the attention given to the capital market to its role in financial
intermediation, specifically the provision of long-term, non-debt financial
capital for companies to avoid inefficient dependence on debt financing,
thereby improving corporate debt-to-equity ratio. This in turn is expected to
enhance the economic growth of the nation. Thus, the capital market is an
essential mechanism through which dormant funds of individuals, firms, and
government are mobilized and made available as long term funds for various
sectors of the economy (Ndako, 2010).
In 1989, the World Bank noted that the
difference between the rich nation and poor nation is characterized by lack of
financial resources to harness the economic resources of poor nations.
Financial resources enable nations to harness economic resources for
development. The development of the
financial system plays an important role in raising the adaptability and pace
of development of an economy through its effects on saving and investment
(Killick and Martin, 1990). Thus, an
efficient financial system that is supported by a good regulatory system
promotes a country’s economic growth and development. Economic growth in a
modern economy depends on an efficient financial sector that pools domestic
savings and mobilizes foreign capital for productive investments. Underdeveloped or poorly functioning capital
market typically are illiquid and expensive which deters foreign
investors. Furthermore, illiquid and
high transactions cost also hinder the efforts of larger domestic enterprises
to raise capital and may push them to foreign markets (Mishra et al, 2010).
The
financial sector is generally divided into three components which include the
banking sector, the non-banking financial institutions and the capital
market. In recent years, as a result of
the soviet union collapse and the positive effect of the capital market on most
developed nations like united kingdom (UK) and United States of America (USA)
capital market activities have taken a center stage in financial sector
development in many developing economies (UNITAR/DFM, 2005).
The
capital market has the financial intermediation capacity to link the deficit
sector with the surplus sector of the economy.
Where the capital market lacks this capacity it deprives the economy of
investment and production of goods and services for societal advancement. Funds
could thereby be idle at one end, while being sought at the other end in
pursuit of socio-economic growth and development (Akin-bohungbe, 1996). Capital
markets are primarily created universally to provide means for effective
mobilization of idle funds from surplus economic units and channeled into
deficit units for long-term investment purposes (Ekineh, 1996).
The
Nigerian capital market was established for the following main objectives; to
mobilize savings from numerous economic units for economic growth and
development, provide adequate liquidity to investors, provide source of funds
for government, to broaden the ownership
base of assets as well as the creation of a buoyant private sector, others
include to promote rapid capital formation, to encourage more efficient allocation
of a given amount of tangible wealth through changes in the composition and
ownership of wealth, encourage more efficient allocation of new investments
through the price mechanism among others. The capital market was established
when the need to raise funds from public sector to cover the temporary
shortfalls in funds available arose.
In
1958, the central bank of Nigeria was established through the central bank of
Nigeria Act of 1958. This was to establish the legal and infrastructural
framework for the take- off of a viable securities/capital market in Nigeria.
On September 15, 1960, the Lagos Stock Exchange was incorporated as a private
limited liability company under the provisions of the Lagos Stock Exchange Act
of 1960. On June 5, 1961, the Lagos Stock Exchange opened for business with 19
listed securities made up of 3 equities, 6 Federal Government Bonds, and 10
Industrial loans. Therefore the Capital Market commenced operations effectively
on June 5, 1961 under the provision of the Lagos Stock Exchange Act of 1961. The
Capital Issues Commission was also constituted to examine and recommend the
establishment of an apex monitoring institution for the growing Nigerian
Capital Market. In 1977, the name of the Lagos Stock Exchange was changed to
the Nigerian Stock Exchange by the indigenization Decree of 1997.
The
Securities and Exchange Commission (SEC) was established in 1979 through the
SEC Act of 1979, to regulate the Capital market but actually started operation
in 1980. It took over regulatory function from Capital Issues Commission
established in 1973.From then, different forms of financial instruments have
been issued in the Capital market by new and existing business to finance
product development, new project or general business expansion (Osaze, 2007).
1.2 Statement of the problem
There
has been a growing concern on the role of stock market in economic growth in
recent times, therefore, economic policies and policy makers have concentrated
on the stock market as a result of the perceived benefits it provides for the
economy. The capital market provides the
support for stock market activities and it is always cited as a barometer of
business direction. An active capital market may be depended on to measure
changes in the general level of economic activities (Obadan, 1998).
Concluding
from the extensive studies on the theoretical expectations on the role of
capital markets on economic growth which have formed the core of normative
economics, the capital market is expected to contribute to economic growth
through the transmission mechanisms of savings mobilization, creation of
liquidity, risk diversification, improved dissemination and acquisition of
information, provision of long-term non-debt financial capital which enables
companies to avoid over- dependence on debt financing, and enhanced incentive
for corporate control amongst others. But, an X-ray on the path of “positive
economics” which is concerned with “what is” rather than “what should be” shows
that the argument in the literature on the growth effects of capital market has
not been sufficiently resolved.
Consequently, this provides the basis for a further empirical
investigation on the effect of capital market on economic growth.
1.3 Objectives of the
study
The
main objective of the study is to assess the effect of capital market on Nigerian
Economic growth from 1985-2017.
The
specific objectives include:
i.
To assess the effect of
total market capitalization on Nigerian economic growth.
ii. To
determine the relationship between all share index and Nigerian economic
growth.
iii. To
assess the effect of total value of stock traded on Nigerian economic growth.
1.4 Research Questions
i. What
effect does total market capitalization have on Nigerian economic growth?
ii. How
does all share index relate with Nigerian economic growth?
iii. What
is the effect of total value of stock traded on Nigerian economic growth?
1.5 Research Hypothesis
Total
market capitalization has no significant effect on Nigerian economic growth.
There
is no significant relationship between all share index and Nigerian economic
growth.
Total
value of stock traded has no significant effect on Nigerian economic growth.
1.6 Scope of the study
This
study examines the effect of capital market on Nigerian economic growth spanning
from the period 1985-2017.Because the economy is a large component with
different complex parts, this research work
focuses only on the financial sector, but the work did not still cover
all the facets that make up the financial sector , but concentrated on the
capital market.
1.7 Significance of the study
It will contribute to existing literature on
the subject matter by investigating empirically the role which capital market
plays on Nigerian economic growth and development. This study will provide
policy recommendations to policy- makers on ways to improve operations and
activities of the capital market.
Click “DOWNLOAD NOW” below to get the complete Projects
FOR QUICK HELP CHAT WITH US NOW!
+(234) 0814 780 1594
Login To Comment