THE CAPITAL MARKET AND THE CHALLENGES OF REAL SECTOR FINANCING IN NIGERIA. (A STUDY OF THE PERIOD 2000-2009)

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  • Name: THE CAPITAL MARKET AND THE CHALLENGES OF REAL SECTOR FINANCING IN NIGERIA. (A STUDY OF THE PERIOD 2000-2009)
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ABSTRACT

This research work evaluates the effectiveness of the capital market in the mobilization and allocation of funds to productive sectors of the economy. Reviewed the role of the capital market, economic stability, sustainable growth and development of the Nigerian economy. The researcher identified; the objectives, the scope and limitations of the research work. Hypothesis statements to test the validity of the phenomena under investigation were stated and analyzed. A review of various literatures relating to the Capital Market was also undertaken. Data relating to capital market were presented and analyzed using various statistical analysis methods such as simple percentage, bar chart, correlation and regression analysis. Based on the outcome of the analysis, it is concluded that the capital market has contributed effectively in the mobilization and allocation of funds to the productive sector of the Nigerian economy. The researcher recommends thus; that there exist an opportunity to attract new firms into the Capital Market, this will further burst the liquidity and capitalization level of the market. The recommendation also listed measures to be put in place to achieve a vibrant capital market

TABLE OF CONTENTS

TITLE PAGE:………………………………………………………… i CERTIFICATION:……………………………………………………. ii DEDICATION:…………..…………………………………………… iii ACKNOWLEDGEMENT:… ………………………………………… iv ABSTRACT:………………………… ………………………………. v TABLE OF CONTENTS:………… ………………………………….. vi-viii

CHAPTER ONE

1.0 INTRODUCTION:…………………………………………….. 1-2 1.1 OBJECTIVES OF THE STUDY:……………………………… 2-4 1.2 STATEMENT OF THE PROBLEM:………………………….. 4-6 1.3 STATEMENT OF HYPOTHESIS:……………………………. 6-8 1.4 SCOPE AND LIMITATION OF THE STUDY:………………. 8-9 1.5 SIGNIFICANCE OF THE STUDY:…………………………… 9 1.6 RESEARCH METHODOLOGY:………………………………. 9-11

CHAPTER TWO

2.0. LITERATURE REVIEW:……………………………………… 12 2.0 INTRODUCTION:……………………………………………… 12-14 2.1 THE ROLE OF THE NIGERIAN CAPITAL MARKET:..……. 14-15 2.2 STRUCTURE OF THE NIGERIA CAPITAL MARKET:…….. 15-16 2.2.1 OFFER FOR SALE:……………………………………………. 16-17 2.2.2 PRIVATE PLACEMENT METHOD:…………………………. 17 2.2.3 RIGHTS ISSUE METHOD:……………………………………. 17 2.2.4 INTRODUCTION METHOD:…………………………………. 18 2.2.5 GLOBAL DEPOSITORY RECEIPTS (GDRS) METHOD:…… 18-19 2.3 SECONDARY MARKET:……………………………..……… 19-25 2.4 GROWTH RECORDS OF NIGERIA CAPITAL MARKET:…. 25-28 2.5 CAPITAL MARKET PERFORMANCE REVIEW 2000-2009:……………………………………………………… 28 2.5.1 NEW ISSUES INDICATORS:…………………………………. 28-29 2.5.2 MARKET CAPITALIZATION INDICATORS:………………. 29-30 2.5.3 TRADING VOLUME AND VALUE INDICATORS:………… 30-31 2.5.4 STOCK INDEX INDICATOR:………………………………… 31 2.5.5 LISTED SECURITIES INDICATORS:…………….………….. 31
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2.6 CAPITAL MARKET INSTITUTIONS:……………………….. 31-32 2.6.1 THE SECURITIES AND EXCHANGE COMMISSION:…….. 32-34 2.6.2 THE NIGERIAN STOCK EXCHANGE:……………………… 34-42 2.6.3 STOCK BROKING HOUSES/BROKERS:……………………. 42 2.6.4 THE REGISTRARS:…………………………………………… 42 2.6.5 SECOND-TIER SECURITY MARKET:………………………. 43-44 2.7 LEGISLATIVE AND REGULATORY FRAME WORK OF THE NIGERIAN CAPITAL MARKET:………………………. 44-45 2.8 CAPITAL MARKET REFORMS:………………………..…… 45-58

CHAPTER THREE

3.0 RESEARCH METHODOLOGY:……………………………… 59 3.1 INTRODUCTION:…………………………………….……….. 59 3.2 RESEARCH DESIGN:………………………………….……… 59 3.3 POPULATION:………………………………………………… 59 3.4 SAMPLING TECHNIQUES:…………………………………… 60 3.5 METHODS OF DATA COLLECTION:……………………….. 60 3.6 PROCEDURES FOR DATA ANALYSIS:………….…………. 60 3.6.1 MODEL SPECIFICATION:…………………………………… 61 3.6.2 METHODS OF ANALYSIS:………………………………….. 61-64

CHAPTER FOUR

4.0 DATA PRESENTATION AND ANALYSIS OF PERFORMANCE OF NIGERIAN STOCK EXCHANGE MARKET INDICATORS……………………………………… 65-66 4.1 ANALYSIS OF THE PERFORMANCE INDICATORS OF THE NIGERIAN STOCK EXCHANGE:……………………… 66-67 4.1.1 TABLE OF ANALYSIS:………………………………………. 67-87 4.2 PRESENTATION AND ANALYSIS OF THE SELECTED COMPANIES QUOTED ON THE STOCK EXCHANGE:…… 87-87 4.3 PRESENTATION/ANALYSIS USING REGRESSION OR CORROLATION:………………………………………………. 89-94 4.4 ANALYSIS OF REGRESSION AND CORROLATION INTERPRETED USING ECONOMIC CRITERIA:..……….… 94-95

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CHAPTER FIVE

5.0 SUMMARY OF THE FINDING, CONCLUSIONS, AND RECOMMENDATIONS:………………………………………. 96 5.1 SUMMARY OF FINDINGS:…………………..……………… 96-97 5.2 GROWTH OF THE NIGERIAN CAPITAL MARKET:……… 97-98 5.2.1 GROWTH IN VALUE OF SHARES TRADED:……………… 98 5.2.2 ALL SHARE INDEX:………………………………………….. 99-101 5.3 CONCLUSION:……………………………………..………… 101-103 5.4 RECOMMENDATIONS:………………………………………. 103-105

REFERENCES:………………………………………………… 106-108

CHAPTER ONE

INTRODUCTION

The capital market is central to the economic stability,
sustainable growth and development of any economy.
Sustainable growth and development in an economy has a
direct bearing to the viability of the productive sector. To achieve
this, it is essential that the capital market through the use of
financial instruments mobilizes and allocates funds to meet the
funding needs of the productive sector.
The capital market trading institution in Nigeria is the Nigerian
Stock Exchange (NSE). Thus the NSE should develop a variety
of financial instruments capable of providing diverse investments
outlets and opportunities for both the investors and borrowers in
the market.
In the recent past, the Nigerian economy has been saddled with
the challenges of a declining productive sector following the
inability of the sector to get adequate funds to meet its needs
from both the money and capital market. On the part of the
capital market, the challenge has been lack of a variety of
investment tools, low savings capacity of investors for the
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market as well as the market capitalization which is stewed
above 50% in favour of services sector of the economy that is,
banks, insurance companies etc.
Following the above assertion, this study aims at investigating
the impact of the capital market on the productive sector of the
economy: A study of the Nigerian Stock Exchange and Selected
Quoted Stocks from 2000 to 2009. The instruments of study will
consist of Equities, Debentures, Preference Shares, and
development stocks.
1.1 OBJECTIVES OF THE STUDY
The purpose of this study is to evaluate the effectiveness of the
capital market in the mobilization and allocation of funds to the
productive sector of the economy; A study of the Nigerian Stock
Exchange and Selected Quoted Stocks (2000 to 2009).
The process involves a comprehensive study of the capital
market in Nigeria from 2000 to 2009. This includes the
investigation of the laws, regulatory mechanism and instruments
of the market and their impact on development of the productive
sectors of the economy. The specific objectives are as follows:
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(i) To find out the extent the capital market has contributed to
the development of the productive sector of the Nigerian
economy.
(ii) To find out the various financial instruments employed by
the capital market for selected companies in the
productive sectors of the economy and how these
instruments have contributed to their growth and that of
the economy.
(iii) To examine the dept of equity financial instruments in the
market and their contribution to economic development.
(iv) To find out if their exist deficiencies in the legal regulatory
framework of the Nigerian capital market.
(v) To find out the depth of equity financial instruments,
especially in the productive sector firms quoted on the
Nigerian Stock Exchange, and their contribution to
economic development.
(vi) To find if any relationship exists between the prices of
equity as well as the value and market capitalization of the
Stock Exchange in relation to GDP. (i.e. the GDP is the
index of productivity in the economy).
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(vii) To analyst the growth of each tool (that is, Equity and
Fixed interest debt instrument) in the Nigerian Stock
Exchange in relation to growth of the companies and the
economy.
1.2 STATEMENT OF THE PROBLEM
The Nigerian capital market which before now was described as
one of the fastest growing stock market in Africa witnessed
serious crises and loss of value following price crashes
especially in the banking sector equities that constituted more
than 50% of the market capitalization.
As a result of this, the market capitalization which in 2008 was
about N12.5 trillion fail and is presently at N5.5 Billion (source:
Stock Exchange weekly activities summary 19/2/2010).
The confidence of investing public dropped, especially, as it
relates to investing in equities financial instruments.
Thus, there exists the need to create a variety of financial
instruments that can assist the market provide:
(i) Investment windows for the market participants such as;
(a) Equities investment tools
(b) Fixed debt investment tool (corporate bodies)
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(c) FG Development Stock
(d) State Government Development Stock
(e) Local Government/Municipal Stock
(f) Mortgage Based Financial Tools
(g) Derivative Financial Tools
(ii) The availability of these financial instruments will help
deepen the market and attract additional investment funds
from both local and foreign private investors.
(iii) Create the required choice for firms who want to raise
money from the market.
(iv) Create a viable productive sector of the economy.
This research therefore is concerned with the slow growth in the
productive sector of the economy and how the capital market
can be used to facilitate growth, especially, in the productive
sectors of Brewing, Food and Beverages as well as construction
sectors.
The problem of the research is to find how best to analyze,
examine and proffer solution to the factors that affect the capital
market especially the market instability, low productive sector
activities as well as declining market capitalization. These
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factors of market instability, low productive sector activities and
declining market capitalization impact sometimes positively or
negatively on economic development of Nigeria.
Also, to investigate the impact of inadequate operational tool in
the Nigerian Capital Market, inadequate savings for investment,
lack of market transparency, political and economic instability as
well as infrastructure deficiency is to be undertaken.
1.3 STATEMENT OF HYPOTHESIS
A statement of hypothesis is a tentative statement about
phenomena whose validity is usually unknown. It is best
described as a statement of probability; such a statement so far
is not supported by relevant information or data.
Statement of hypothesis is often stated to highlight the
perceived relationship between a dependent and our
independent variable.
There are various types of hypothesis for the suppose of this
research, we will consider the Null Hypothesis and the
Alternative Hypothesis
Null Hypothesis, this is the reverse of the research hypothesis. It
is normally stated in the negative form.
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Alternative Hypothesis, this is the working hypothesis. It is
usually derived from researcher’s theory about some observed
phenomena on the subject under research.
HYPOTHESIS
NULL HYPOTHESIS (HO): Capital Market operation does not
enhance the productive sector development in Nigeria
ALTERNATE HYPOTHESIS (HI): Capital Market operation
enhance the productive sector development in Nigeria
Hypothesis 2
Ho: (Null Hypothesis): The growth in the value and volume of
equity financial instrument for productive firms quoted on
the Stock Exchange does not contribute to economic
development.
Hi: (Alternative Hypothesis): The growth in the value and
volume of equity financial instrument for productive firms
quoted on the Stock Exchange contributes to economic
development.

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Hypothesis 3
Ho: (Null Hypothesis): The growth in the value and traded
volume of securities quoted on the Nigerian Stock
Exchange does not contribute to economic development.
Hi: (Alternative Hypothesis): The growth in the value and
traded volume of securities quoted on the Nigerian Stock
Exchange contributes to economic development
1.4 SCOPE AND LIMITATION OF THE STUDY
This study is focused on the analysis of the Nigerian capital
market and real sector development in Nigeria using selected
financial instruments by some quoted companies in the Nigerian
Stock Exchange. However, owing to the limitation of time,
resources especially finance, data from the institutions, the
analysis will be limited to the Nigerian Stock Exchange and
three selected companies quoted in the productive sector of the
Stock Exchange such as brewing, construction and food and
beverage.
The period to be evaluated by this study is a period of ten years
2000 to 2008.

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1.5 SIGNIFICANCE OF THE STUDY
The capital market is a major source of long term savings
mobilization in any economy. For any economy to grow, the real
sector of the economy must be actively engaged in production of
goods and services. Given this view, therefore, a functional real
sector in any economy is a sine-que-non to economic growth
and development. Therefore, a study of this nature is very
essential to all stakeholders in the Nigerian economy such as
Manufacturers Association of Nigeria, Industrialist, Bankers,
Stockbrokers, Financial Sector Regulators, the Political
Managers, Investors, consumers and the entire Nigerian
Society.
Also, the findings from this study will extend the frontier of
existing knowledge, literature and serve as a stepping stone for
further research. It will provide input for investment, policy
making and decision.
1.6 RESEARCH METHODOLOGY
In conducting a research work, the student is involving in
designing the research. This involves the employment of survey
and descriptive designs.
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The researcher also determines the sample population and
sample size of the study. The population being the Nigerian
capital market and selected instruments traded on the Stock
Exchange for firms in the productive sectors of the economy.
The process of sourcing, selecting and obtaining valid and
reliable data as well as method to be employed in the analysis of
the data is thus carried out by the researcher.
Given the nature of this topic, the researcher will rely mainly on
secondary data.
The sources of the data will include:
(i) The Nigerian Stock Exchange Daily Trading List
(ii) The Nigerian Stock Exchange Quarterly and Annual
Report/Review
(iii) Security and Exchange Commission (SEC) Quarterly
Reports
(iv) Security and Exchange Commission Annual Report and
Account
(v) Financial Statement of quoted companies in the
manufacturing and Stock Exchange
(vi) Central Bank of Nigeria (CBN) Statistical Bulletins
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(vii) Annual reposts, published journals, previous research
work as well as magazines
The following statistical tools will be applied in the test to be
carried out in this research work:
(a) Simple Regression Analysis
(b) Correction Coefficients
(c) Coefficient of determination
(d) Student’s t-test
(e) Bare chart
(f) Simple percentage analysis
At the end of the analysis, the degree of the association of the
dependent variable with each of the independent variables will
determine their position in the valuation process.

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