ABSTRACT
Nigeria capital market is relatively new and has many factors influencing it. The capital market is for sourcing of long term loans, while the floating of government bonds will likely stimulate the capital market in its size and activities. Thus, the study investigated the effect of government bonds on capital market performance in Nigeria within the period of (1990 – 2016). The method of analysis used in testing the hypothesis was the Ordinary Least Square (OLS) technique. The study among other things reported that, Federal government of Nigeria bonds has a significant impact on capital market performance in Nigeria, Federal government value of trade bonds has a significant impact on capital market performance in Nigeria and Federal government total new issue has a significant impact on capital market performance in Nigeria. Based on the findings, the study recommended that: The government should continue to acquire funds majorly through FGN bonds. As shown in the result, FGN bonds have a significant positive impact on capital market performance in Nigeria. To continue boosting the value of trade in the Nigerian capital market, there is need for availability of more investment instruments such as derivatives, convertibles, future and swaps options in the market. Total new issues are very important to the growth of any capital market. Therefore, government should continue to employ appropriate trade policies such as establishing National Association of Securities Dealers (NASD) that promote the inflow of international capital and foreign investment, so as to enhance the production capacity of the nation.
TABLE OF CONTENTS
Cover page i
Title page ii
Declaration iii
Certification iv
Dedication v
Acknowledgement vi
Table of Contents vii
List of Tables ix
Abstract x
CHAPTER ONE: INTRODUCTION 1
1.1 Background of the study 1
1.2 Statement of
Problem 2
1.3 Objectives of
the study 3
1.4 Research
Questions 3
1.5 Research
Hypotheses 3
1.6 Scope and
limitation of the study 4
1.7 Significance
of the study 4
1.8 Definition of
terms 5
CHAPTER TWO: REVIEW OF RELATED
LITERATURE 6
2.1 Conceptual Framework 6
2.1.1 The concept of capital
market 6
2.1.2 Roles of the Nigerian capital
market 7
2.1.3 Capital market and economic
growth channels of linkage 8
2.1.4 Definition of Bonds and the
Bonds Market 10
2.1.5 Overview of the Nigerian Bonds
Market 12
2.2 Theoretical Framework 12
2.2.1 The Nigerian stock market in
perspective 14
2.2.2 Nigerian stock exchange
specific reforms 17
2.3 Empirical
Literature Review 19
CHAPTER
THREE: RESEARCH METHODOLOGY 25
3.1 Research design 25
3.2 Area of Study 25
3.3Sources of
data collection 25
3.4 Description of Variables 25
3.5 Model Specification 26
3.6 Techniques of Analysis 27
3.6.1 T- Statistics 27
3.6.2 F- Statistics 27
3.6.3 R- Squared 28
CHAPTER FOUR: DATA PRESENTATION, ANALYSIS AND
DISCUSSION 29
OF FINDINGS
4.1 Introduction: 29
4.2 Descriptive analysis 30
4.3 Analysis,
Discussion of Findings and Hypotheses Testing 31
4.3.1 Test of Hypothesis 32
4.4 Discussion of Result 34
CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND
RECOMMENDATIONS
5.1 Introduction 35
5.2: Summary of Findings 35
5.3 Conclusion 36
5.4 Recommendations 36
References 37
Appendix
LIST OF TABLES
Table1: Data Presentation 29
Table 2: Descriptive Statistics 30
Table 3: Presentation of Ordinary
Least Square Regression (OLS) Result. 31
CHAPTER ONE
INTRODUCTION
1.1
Background
of the study
The Nigerian capital market is relatively new and has many
factors influencing it. The capital market is for sourcing of long term loans,
while the floating of government bonds will likely stimulate the capital market
in its size and activities. According to Securities and Exchange Commission (SEC,
2000), the bond market is preferred as the ideal mechanism for the exchange of
claims among buyers. Government bonds have interest bearings securities in the
capital market and also mutual relationship with itself, thus government stock
as an instrument gives the capital market room to exist. The presence of
government bonds in the Nigerian capital market can be traced to the early
twentieth century (20th) and also floating of a bond in 1946 by the then
colonial government. The Federal government development bonds which were
formally introduced in 1959 was designed to provide long term finance for
government projects and later most proceeds are leased on regular basis till
1986 when deregulation of the capital market started. The recent challenges of
the capital market in Nigeria are due to economic meltdown from 2009, according
to CBN (Central Bank of Nigeria) annual report on its fair share on government
bonds. The dismal performance of the banking sector was owing to reforms,
administrative charges and others of the CBN and SEC and also counter policies
within and outside the market are some factors that have inhibited the capital
market as well and the impact of government bonds.
The
development of capital market in Nigeria, as in other developing countries has
been induced by the government. Though prior to the establishment of stock
market in Nigeria, there existed some less formal market arrangements for the
operation of capital market. It was not prominent until the visit of Mr. J. B.
Lobynesion in 1959, on the invitation of the Federal government, to advice on
the role the Central Bank could play in the development of local money and
capital market. As a follow-up to this, the government commissioned and a set
up the Barback Committee to study and make recommendations on the ways and
means of establishing a stock market in Nigeria as a formal capital market.
Acting 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 under Section 2 cap 37, through the collaborative effort of
Central Bank of Nigeria, the Business Community and Industrial Development Bank
(Alile&Anao, 1990).
1.2 Statement of Problem
The secondary objective of floating government bond is to
source for funds which could be in form of loan accessible to state
governments. Aside the social and institutional
factors inhibiting the process of economic development in Nigeria, the
bottleneck created by the dearth of finance to the economy constitutes a major
setback to its development.
Most authors on the Nigerian capital market literature have
recognized the significant impact the capital market has on the economic growth
and development of Nigeria, but to some extent the capital market have under
gone some challenges which include; unstable macro-economic environment, poor
system of supervision and regulation, limited range of securities, inhibited
foreign capital inflow etc. This research work attempts to ascertain if
government bond has been able to influence capital market growth and economic
development in Nigeria. In Nigeria, much work has not been done to empirically
investigate the impact of government bonds on capital market growth in Nigeria.
This is the gap in knowledge the researcher is attempting to fill.
1.3 Objectives of the study
The
main objective of the study is to determine the impact
of government bond on capitals market growth in Nigeria.
The specific
objectives of the study are to:
1. Determine
the impact of Federal government bonds on capital market performance in
Nigeria.
2. Investigate
the impact of Federal government value of trade on capital market performance
in Nigeria.
3. Evaluate the impact of Federal government
total new issue on capital market performance in Nigeria.
1.5
Research
Questions
1. How
has Federal government bonds impacted on capital market performance in Nigeria?
2. To
what extent has Federal government value of trade impacted on capital market
performance in Nigeria?
3. What
is the impact of Federal government total new issue on capital market
performance in Nigeria?
1.5 Research Hypotheses
The research
hypotheses stated in null form are as follows:
H01: Federal
government bonds has no significant impact on capital market performance in
Nigeria.
H02:
Federal government value of trade impacted has no significant impact on capital
market performance in Nigeria
H03: Federal government total new issue
has no significant impact on capital market performance in Nigeria
1.6
Scope and limitation of the study
This study attempts
to investigate the impact of government bonds on capital market growth in
Nigeria. Data will be extracted from the entire stock market list in the
Nigerian stock exchange annual reports and statement of accounts, Central Bank
Statistical bulletin, and stock exchange fact book over a period of time
specifically 1990 to 2016 which is the scope of the study. This document will
form the source of data collection. The researcher
may likely encounter challenges in the course of the study.
a) Availability of research material: The research material available to the researcher
is insufficient, thereby limiting the study
b) Time:
The time frame allocated to the study does not enhance wider coverage as the
researcher has to combine other academic activities and examinations with the
study.
1.7 Significance of the study
The study will enable the government to understand when to float
bonds and how to set up policies to achieve a stable macro-economic environment
animal at fostering the growth of the capital market. The study will also help
to enable investors to seek for better return on their investment in fixed
income securities. Also the study will go a long way to enabling students to
understand the meaning of capital market growth and government bond.
Researchers can build on this research work for further study by expanding the
scope of for their academic purpose.
1.8 Definition of terms
Government
bond: This is also known as
“sovereign bond” is a bond issued by a national government, generally with a
promise to pay periodic interest payments and to repay the face value on the maturity date.
Capital:
According to Adam Smith,
capital is that part of a man’s stock which he expects to afford him revenue
Capital
Market: A capital market is a
financial market in
which long-term debt (over a year) or equity-backed securities are bought and
sold. Capital markets channel
the wealth of savers to those who can put it to long-term productive use, such
as companies or governments making long-term investments.
Economic
Growth: Economic growth is the
increase in the inflation-adjusted market value of the goods and services
produced by an economy over time. It is conventionally measured as the percent
rate of increase in real gross domestic product, or real GDP.
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