ABSTRACT

This study examines “The Impact of Capital Market on Economic Erowth in Nigeria”. Economic growth was proxied by gross domestic product while capital market performance was measured by market capitalization, total new issues, volume of transaction and listed equities. Data was collected using secondary source of data only. The technique employed was multiple regression as tool of analysis for the study. The findings of the study shows that the capital market performance has positively and significantly impacted on the Nigerian economy within the period of the study (1983- 2010). The study therefore, recommends among others that the Central Bank of Nigeria (CBN), the Nigerian Stock Exchange (NSE) and Security and Exchange Commission (SEC) should ensure free flow of information in the market. This is necessary in order to attract more investors and increase new issues which will automatically increase the quantum of market capitalization that will result in improving the performance of the Nigerian capital market.

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

The capital market  is highly specialisedand organized financial market and indeed essential agent of economic growth and development (Odetayoand Sayugbe  2012; Okoye and  Nwisieryi 2013)  because of its ability to facilitate and mobilisesaving and investment (Okodua and Ewetan, 2015; Dowa and Odia, 2010)Adesin et at (2013) opine that capital market is a driver or lubricant that keep turning the wheel of the economy to growth and development because of the imperative function of not just mobilizing long-term funds and channeling term to productive investment but also efficiently allocating these funds to project of best return to fund owners.

To a great extent, the positive relationship between capital market accumulation and economic growth has long been attained in economic theories Cayanwu 2010; Osamwony:  and Kasimu, 2013) success in capital accumulation and mobilization for development varies among nations but it is largely dependent on domestic savings and inflow of  foreign capital (Osumwonyi and Adol 2013; Okoye and Nwisiery;   2013)  therefore to arrest the menaceof the current economic downturn, effect must be geared towards effective resources mobilization.

It is in realization of this that considerationis given to measure for the mobilization of finance from the surplus sectors to the deficit  sectors (Adeusi el al 2013).

The development of capital market in Nigerian as in other developing countries, has  been included  as fostered by the government.  Through prior to the establishment of the stock market in Nigeria, as a formal capital market .  assuring on the recommendation of the committee, the Lagos stock exchange (as it was called then) was set up in march 1960it was incorporated under section 2 cap 37 through  the effort of Central Bank of Nigeria (pat and James 2010) with the establishment of the coming into existence of the Lagos stock exchange a sound foundation was laid for the operation of the Nigeria  capital market for trading in securities of long term nature needed for the financing of the industrial sector and the economy at large.  After the incorporation of Lagos stock exchange, it was qranted further protection under the law and its activities was placed under some sort of control by the government hence the passing of the Lagos stock exchange act however, the Lagos stock exchange was only operational in Lagos.  By the mid 70’s  the need for an efficient financial system for the  an efficient financial system for the whole nation was emphasized  and a review by the government of the operation of the Lagos stock exchange market was educated (A lile and Ana 2008) the review  was carried out to take care of the law capital formulation, the huge amount of currency in circulation which were held outside  the banking system:  on December 2nd and the memorandum and article of association creating the Lagos stock exchange was transformed into the Nigeria stock exchange with branches in Kaduna, Port-Harcourt and now federal cities the history  of Nigeria  capital market could be traced to 1996 when the British colonial administration  floated a N600,00 Local  loan stock  bearing project under the ten-years plain  Local ordinance.  Owolabi and Ajay, (2013) post that  the link between saving  capital formation and economic growth on the one hand and direction of causality on the other  still remain subject to further angles across. Countries stressingthat accepting the relationship  is unidirectional (ie, moving from saving to investment and hence to economic growth) cycle misleading.

Therefore, this project work will examine the role of the capital market in hamssing and mobilizing  these resource to general economic growth in the country and consequently economic development.

1.2 STATEMENT OF THE PROBLEM

There is abundant evidence that most Nigerian business lack long-term capital.  The business sector has depended mainly  on short-term finance  even long-term capital.  According to Allhasi,Atikukatur (2008) stated some of the problems or challenges faced by the market are as follows:

1. i) Miss appropriation of fund
2. ii) Wasteful expenditure and corruption

iii) Internal crisis and absent of effective supervision and regulation,

1. iv) Lot of companies that came into the manage to or raise money feel reluctant or discouraged because of the present economic situation of the market.

1.3 OBJECTIVE OF THE STUDY

The broad objective of this study examined the activities and performance of Nigeria capital market the specific objective of the study are as follows.

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

2) To make recommendation as to how the operations of the market could be improved to boost economic growth and development of Nigeria  the objective solve the problem because,  for the capital market to improve it all depends on the economic when their is economic down-turnor depression it affects the capital market and finally the operation of the market is important if the economic improve then the market will also improve.

1.4 RESEACH QUESTIONS

1. i) To what extent has the Nigeria capital market contributed to the growth of the Nigeria economy?
2. ii) capital market has not contributed to development of the Nigeria economy?
3. ii) Capital market does not face any challenges?

1.5 RESEARCH HYPOTHESIS

H0: Nigeria capital market has no significance relationship between economic growth.

H1: There is significant relationship between capital market and economic in Nigeria.

1.6 SIGNIFICANCE F THE STUDY

The study explored the impact of effectiveness of capital market instruments in Nigeria economy growth. Through the scope of the study was limited to the capital market will provide a broad view of the operations of the capital market in which will contribute to existing literature on subject matter by investigating especially the role which the capital market plays the main important of this study is that it will provide recommendation to policy maker on ways to improve operations and activities of the capital market.

1.7 SCOPE AND LIMITATION OF THE STUDY

The economy is a large component with lot of diverse and sometimes complex parts of the economy (the financial sector) the factors that make up the financial sectors but shall focus only on teh capital market and its activities as its impact on the Nigeria economic growth the empirical investigation of the impact of capital market on the economic in Nigeria shall be restricted to the period between 1980-2010 due to the non availability of some important data.

1.8 ORGANIZATION OF THE STUDY

The study is divided into five (5) chapter and organized as follows:

Chapter one from the introduction part, this is where the main theme of research is given. It comprises of the statement of hypothesis, significance of the study, scope limitation of the study, research questions and hypothesis, organization of the study and the definition terms

Chapter two is the literature review of the impact or role of capital market in the growth of Nigeria economy.

Chapter three forms the research method of data analysis and model specification.

Chapter four is the data analysis while

Chapter five includes the summary, conclusion and recommendation.

1.9 DEFINITION OF TERMS

 Capital Market: The capital market is a market which deals with long-term loans.

 The Stock Exchange: The stock exchange is an institution of capital market which provide trading floors where all dealing members operates on every business day.

 Economic Growth: Economic growth means an increase in the capacity of an economy to produce goods and services compared from one period of time to another.

 Bond: A long-term promissory note is having a fixed interest and maturity date.

 Ordinary share: A long-term capital which have maturity date and the shareholders cannot withdraw their shares as long as the company remains.

 Equity Shares/Common Stock: The are ordinary shares which are offered to the public which prospective investors by, that allows them to partake in the ownership of a company.

 Debenture: An official document given by a company showing that has borrowed money and that is will pay a fixed rate interest whether or not it makes a profit.

 Preference share: A source of finance that combines both features of ordinary shares debt and bonds.