The project work
takes a look at an appraisal of the Role of Capital market on Nigeria Economy a
study of Nigerian Stock Exchange. The study shows the growth of the Nigerian
Stock Exchange over the years, and since its inception, has been very slow
compared to other stock exchanges established at the same time along with it in
Research design is
a blueprint or strategy that enables the research identifies relevant approach
to adopt in gathering and analyzing data. It is a subsumed of research
methodology. Hence, research design member of a group of scientific study of
method of research, in the course of this study, the entire questionnaire was
collected and analysed based on simple percentage. After all these, the
hypothesis formulated were tested, the technique of data analysis used for this
research work is chi-square method.
development stock and estate revenue bonds to insure greater fund for economic development
stock and state.
The capital market
is the principal sources of long term financing in Nigeria. In the
light of this, it must be efficient in all respect to contribute greatly to the
economic development of the country. Therefore, we can say based on the level
of development in Nigeria, that the capital market is but marginally efficient.
TABLE OF CONTENTS
Table of Contents
1.1 Background of Study
1.2 Statement of the problems
1.3 Objectives of the study
1.4 Research Question
1.5 Research Hypothesis
1.6 Significance of Study
1.7 Scope and Limitations of Study
1.8 Definition of Terms
2.0 LITERATURE REVIEW
2.2 The position of capital in economy
development in Nigeria.
2.3 Meaning of small and medium scale
Characteristics of small and medium scale enterprise
2.3.2 Roles of
small and medium scale enterprise
2.4 The contribution of the operations of the
Market to the growth of small and
medium scale enterprises
2.5 The structure
of Nigerian capital market
2.6 How to raise
fund in the capital market
2.7 Definition of
second –tier security market (SSM)
2.8 Rationale for
second –tier security market
requirement of the main market
requirement of second-tier market
2.9 Benefits of public quotation
2.10 Companies Quoted on Nigerian SSM
2.10 Problems and
prospect of the Nigerian capital market
3.0 RESEARCH METHODOLOGY
3.2 Area of Study
3.5 Data analysis
4.0 DATA PRESENTATION, ANALYSIS AND
4.2 Presentation and Analysis
4.3 Test hypothesis
CONCLUSION AND RECOMMENDATIONS
The capital market
is a highly specialized and organized financial market and indeed essential
agent of economy development because of its ability to facilitate and mobilize
saving and investment. The concept market is one of the compartment of
financial system that promotes savings and investment in an economy by
providing the means and gathering of savings and making them available to
borrowers. The other compartments of financial system are the money market
which is being controlled by Central Bank of Nigeria (CBN).
The primary role of
capital market is to raise long-term funds for governments, banks and corporations
while providing a platform for the trading of securities. The fundraising is
regulated by the performance of the stock and bond markets within the capital
It is important for
investors to understand market trends before fully investing in the capital
market. To that end, there are various market indices available to investors
that reflect the present performance of the market.
The Stock Exchange
is one of the key institutions of the capital market, a network
of individuals institutions and instruments involve in the effective channeling
of funds from the surplus to deficit economic units (Alile, 1999).
Stock Exchange is a
place where securities such as bonds, stocks and shares of different shades and
types are traded openly, and where one can purchase or sell any of such
securities relatively easily.
As Alile (1986),
aptly puts securities as paper evidence of ownership or entitlement to a claim
upon the assets of the issuing organization, which may be a business firm,
government or a quasi-government organization. It is suffice to note that some
document or any paper evidence have no fixed value attached to them without
been tested on the stock exchange market at rates or value which are subjective
and determined by the buyers and sellers of such security. Anao (1970)
described stock exchange as an economic institution, which sees to the effective allocation of
available capital funds to the diverse uses in economy.
In fact, to an
ordinary investor, it's a place where quick money can be made or loss. It
represents an ideal setting for the smart and daring speculator to make a
fortune with relatively little effort, in terms of contributing anything of
substance to national output and the unwary can lose a fortune through false
The stock exchange
plays a central and indispensable role for which it has been variously
described as the "hallmark or heart: of the capital market. From its
strict definition the stock exchange is a market for trading on outstanding
issues (shares/ stocks) Alile (1999) observed that the opportunity which it offers for
subsequent trading in existing securities, have made it observed that the
opportunity which it offers for subsequent trading in existing securities, have
made it a decisive factor the success or otherwise of many corporate Issues and
by extension, the effectiveness of capital formation in the economy.
Under a free
enterprise system, while we operate in Nigeria, the Stock Exchange is an
important part in the economic life of the nation. Through its functions, it
enables governments and industries to raise long-term capital to finance
developmental projects for expansion and modernization of industrial/
commercial concerns. An effective stock market mobilizes savings and allocates
a greater proportion to those corn peruse with the highest prospective rates of
returns after giving due allowance for risk
(Alile, 1999). The
allocate function is critical in determining the overall growth of the economy.
It capital resources
are not provided to those economic area especially industries where demand is
growing and which are capable of increasing prod action and productivity, then
the rate of expansion of the economy will inevitably suffer.
According to Alile
(1999), this awareness has propelled many economists to use stock market as
conduct for channeling long- term funds to their productive sectors. In
particular, with the difficulties faced by many finance institutions in
developing countries, capital market route has become credible alternative
source of supporting equity and long-term investment financing.
The investment prices is popularly known as
consisting of the discovery and purchase of securities which are undervalued,
and keep in holding until they cease to be good "Value" so the adage
in the market is buy when they are low and sells when they are high
"Buy-hold-sell" syndrome is therefore as essential characteristic of
the conventional 'beat-the-market' philosophy. This same philosophy has
affected the character of financial reporting, which his conventionally
perceived as having one of the principal aims as the provision of information
that might help the ordinary security holder to formulate, any/or sell
The capital market
is however quite distinct in practice from theory. Simon Kean (1985) observed that the
capital market in practice, its infrastructure, its reputation are all firmly
founded on the belief that it is not a reliable prime-seller and that it
frequently and sometime significantly, misinterpret the economic signals it
receives. Ariyo (2000) noted that prices are more market driven because
transactions are based on market information that available right in the
meaning of effective is producing the result that is wanted or intended in an
ordinary sense, it might suggest that market effectiveness relates to the
organization and administrative effectiveness of the security market, but the
term effectiveness however is used here in a much narrow sense, being concerned
specifically with how successful prices that reflects the worth
or value of the securities and also whether the market incorporates all new information in its security price is a rapid and Uri biased
manner especially at the moment in history where there is revolution in the
information, technology and making information to be at the finger tip of
many. In today's world, information is power
and when used rightly, it is efficient and effective.
Beave (1981) said
that the two aspects of a price adjustment to new information i.e. speeds and
quality would be necessary, as some effective market researchers only referred
to the speed aspect and thus is incorrect. Beaver further said if a doubling
price of a share was regarded as an effective reaction it is new in formation
Just because the movement was instantaneous and the information also warranted
a substantial reduction in the price, this will clearly produce an old
interpretation of effectiveness. However, both aspect of the price reaction is
equally important. So the main effect of efficiency is that it precludes most
investors from being able to operate the market.
1.2 STATEMENT OF THE PROBLEMS
whether a market is precisely effective or not cannot be adequately answered by
simply 'yes or no'; there are some issues to be addressed. The investors view
doubtless range from total belief in the market's effectiveness to total
disbelief, with various degrees skepticism in between. It is noteworthy to point
out that there are two extreme camps on the use of stock market effectiveness.
Firstly, the academic who believe the market to be ineffective and act
accordingly, and secondly, the practitioners who by and large are prepared, to
take security prices as the best estimate of a share's worth (Simon, 1985).
The casual personal
experience is an unreliable guide and tends more often 'that not to support the
illusion of ineffectiveness, Simon (1985) suggested that there is need to bridge
the gap between these two camps. An attempt to do this, the practitioner's camp
is needed to be provided with a clarification of the researcher's view.
In order to
appreciate fully the concept of stock market effectiveness, the following will
(i) What precisely does
(ii) Is it enough to
find a single ineffectiveness for the market to be vividly described as being
is possible for the market to be effective for one investor and not for
the alteration of the stock market depend on its being ineffective?
it possible for an effective market to remain so if all investor come to believe in EMH
(Effective Market Hypothesis)?
the market is effective, how should this affect the behaviour of investors,
investment advisers, corporate managers and accountants?
1.3 OBJECTIVES OF THE STUDY
The objectives of
carrying out this research are as follows:
(i) To highlight
the importance of the capital market and its role in the economy of Nigeria.
(ii) To examine
the rate at which new stocks are issued on the capital market
(iiI) To examine the operations of
the Nigeria capital market
(iv) To determine
the factors that affect share pricing system on the Nigerian
stock exchange market
(v) To examine the
contributions of capital market in the effective allocation of resources within
(vi) To examine how information that is being made
available to investors are interpreted.
1.4 RESEARCH QUESTIONS
The research shall
be guided by the following research questions;
(1) What impact
does the effectiveness and growths of capital market has on the Nigerian
(2) What are the
factors that affect share-pricing system on the Nigerian Stock Exchange Market?
(3) How does that
information available to investors a in turreted?
(4) What is the rate at which
new stocks are issued on the Nigerian capital market?
(5) How could the
capital market through its crucial role stimulate economic growth in Nigeria?
(6) What is the trend of
trading activities on the capital market?
1.5 RESEARCH HYPOTHESIS
.market is not important to the development of small and mediate scale
market is important to the development of small and medium scale enterprises.
OF THE STUDY
interest in small and medium scale enterprises is in part as a result of lack
of vigor or lackadaisical attitude paid by financial institution and the capital market to their
plight. Analysis of the problem related to this ineffectual attitude indicate
that they could probably have been available to the government initiated
policies that will engineer the growth and development of small and medium
scale enterprises, policies that was .cut of suasion compulsion make the
capital market to pay more attention to the growth and development of small and
medium scale enterprises.
AND LIMITATION OF STUDY
This study deals
mainly with the importance of capital market in order to support the trading on
stocks in the development of small and medium scale: enterprises. This study
also discusses the major players and institutions operating in the capital
market and their effort in developing small and medium scale in Nigeria.
As a result of
continued efforts of the Nigeria stock exchange to provide its facilities to
small and medium scale enterprises, some small and medium enterprises that have
engage second-tier listing on the exchange. However, there exist some
encumbrances of the study.
These include the
limitation of available information, as many small and medium scale enterprises
seen are reluctant to disclose.
1.8 DEFINITION OF TERMS
For the simplicity
of this study to a layman the following are the definition of terms used:
SMES: Small and Medium
A medium scale
enterprises is an enterprise where total cost including working capital but
excluding cost of land is about N 150 million with a labour size between thirty
six (36) and one hundred (100) workers.
A SMALL SCALE ENTERPRISE: is an enterprise
whose total cost including working capital but excluding cost of land N 1
million and labour size of not more than 10 workers.
NIGERIA STOCK EXCHANGE: This is the apex
regulatory body for trading of securities in Nigeria. It was established in
1961. It is the market for the raising of funds for the growth and expansion of
SHARE: Each of the equal
parts into which a company's capital is divided entitling its owner to a
proportion of the profits and equity.
VALUE: An estimate of
Worth: The best valuation
of share in relation to available information.
SHARE PRICE: the market's
estimate of worth of share.
DIRECT EVIDENCE: Evidence relating
to market effectiveness which focuses on the market's speed and quality of
response to specific information items.
INSIDER: An investor who has
access to privilege price, sensitive information and who exploits his position
for investment purposes.
SECURITY MARKET LINE: A line indicating
the trade-off of risk and return for individual assets.
SEMI-STRONG EFFECTIVENESS: The market is
effective as the semi-strong level of security prices adjust rapidly and
without bias to all public information.
STRONG EFFECTIVENESS: The market is
effective at the strong level of prices respond rapidly and without bias to all
information including unpublished data.
WEAK EFFECTIVENESS: The market is
effective at the weak level if it responds rapidly and without bias to the
information set contained in the history of past prices.
INDIRECT EVIDENCE: Evidence relating
to market effectiveness which focuses on the use of information by experts and
their relative success in pursuing an active strategy.
SYSTEMATIC RISK: Risk that cannot be
BUY-AND-HOLD POLICY: The policy of
buying a representative selection of the market portfolio and transacting only
to the extent necessary to maintain the balance of the portfolio.
TECHNICAL ANALYSIS: The analysis of
past security's price movement as a method of predicting future price movement.
INTRINSIC WORTH: The best estimate
of a security's value In relation to the total set of information available.
MARKET PORTFOLIO: The portfolio of
all marketable risky assets in the world in their value related pro.