The Project File Details
1.1 Background of the Study
The financial system in any modern economy consists basically
of two markets via:
1} The money market
2} The capital market
The money market provides short term finances for project
execution, while the capital market perform all the long term
functions of buying, selling and borrowing of long term funds.
The capital market is a highly specialized and organized
financial market and indeed essential agent of economic growth
because of its ability to facilitate and mobilize saving and investment.
To a great extent, the positive relationship between capital
accumulation and economic growth has long been affirmed in
economic theories (Anganwu 1993).
Success in capital accumulation and mobilization for
development varies among nations, but is largely dependent on
domestic savings and inflows of foreign capital therefore, to arrest the
menace of the current economic downturn, effort must be geared
towards effective resources mobilization. It is in realization of this,
consideration is given to the measure for the development of capital
market as an institution for the mobilization of finance from the
surplus sector to the deficit sector. The development in the capital
market in Nigeria, as in other developing countries has been induced
by the government though prior to establishment of stock.
Market in Nigeria, there existed some less formal market
arrangement 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. Central bank could play in
the development of local money and capital market. As a follow up to
this, the government commissioned and set up makes
recommendation on the ways and means of establishing a stock
market in Nigeria as a formal capital market. Acting on the
recommendation Lagos stock exchange was established on March
1960, it was incorporated under section 2 cap 37 in September 1961.
With the establishment of central bank of Nigeria in 1959 and
establishment of Lagos stock exchange in 1961 the Nigeria stock
exchange was established in 1979 by an act in 1979. A review was
carried out to take care of the low capital formation, the huge amount
of currency in circulation which has held outside the banking system,
the unsatisfactory demarcation between commercial banks and
emerging merchant banks, and the extremely shallow depth of the
Response to the problem mentioned above the government
decentralized the stock exchange on the 2nd of December 1977 the
memorandum and article of association of the Lagos stock exchange,
with branches in Lagos, Kaduna, Port-Harcourt, Yola and now in the
Federal capital territories and some other cities.
1.2 Statement of the Problem
There is abundant evidence that more Nigeria business lack
long term capita. The business sector has mainly dependent on short
term capital likes, overdraft to finance businesses that require long
term capital based on the maturity matching concept such financing is
risky. All such firms require appropriate mix of short and long term
capital (Demirguckunt and Levine 1996).
Most recent literature on Nigerian capital market have
recognized the tremendous performance, the market has recorded in
recent times. However, vital role of the capital market in economic
growth and development has not been empirically investigated
thereby creating a research gap in this area. This study is undertaken
to examine the contribution of the capital market in Nigeria economic
Aside the social institutional factor 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
At the Nigeria Stock Exchange (NSE) buyers and seller are the
same people so the market is no more than a manipulative institution,
where corruption and lack of transparency has brought misery to
investors. Or how could one describe a situation where market
crashed in 2008 with capitalization collapsing from fifteen million to
six trillion without anybody lifting a finger? (Etubong 2008). Because
of this known deficiency, corruption has permeated the system, there
is price fixing and overvaluation of shares. Initial public offers (IPOs)
are manipulated. Most executive and council members of the
exchange stooped so low to collaborate with stock brokers by leaking
information thereby manipulating price of shares. As a result, it is
necessary to evaluate the Nigerian capital market following these
1.3 Objective of the Study
The broad objective of this study is to examine the activities and
performance of the Nigerian capital market. The objective is to
appraise the role of the capital market to economic growth and
economic development of the Nigerian capital market.
The special objectives of this study are as follows:
1. To examine the operations of the capital market.
2. To evaluate the performance of the capital market in relation to
the economic growth in Nigeria.
3. To examine the rate at which new stocks are issued on the
4. It is also of interest to appraise the rational for making the
exchange a self regulatory organization.
5. To improve recommendations as how the operations of the
market could be improved to boost economic growth and
economic development of Nigeria.
1.4 Research Questions
To achieve the above objectives, the following research
questions were raised:
1. What the achievements and challenges of the Nigerian stock
exchange in developing the capital market and economic
growth and development?
2. What is the performance of the capital market in relation to
economic growth in Nigeria?
3. How is the operation of Nigeria capital market?
4. What is the rate at which new stocks are issued on the Nigerian
5. How could the capital market through its crucial role, stimulate
economic growth in Nigeria?
1.5 Research Hypothesis
H0: Capital market operations have no impact on Nigerian
H1: Capital market operations have impact on Nigerian economic
H0: There is no significant relationship between global economic
meltdown and the crisis in the capital market.
H1: There is significant relationship between global economic
meltdown and the crisis in the capital market.
H0: The crisis in the capital market has not affected the Nigerian
economy in any way.
H1: The crisis in the capital market has affected the Nigerian
economy in any way.
1.6 The Scope of Study
The study covers the Nigerian capital market as a whole and the
Nigerian Economy. This work does not cover all the facts that make
up the financial sector but it is focused on the capital market and its
activities as its impact on the Nigerian economic growth. The
empirical investigation of the impact of the capital market on the
economic growth in Nigeria was restricted to the period between 1987
and 2011 due to the non-availability of some important data.
The Nigerian Stock Exchange is taking holistically but with the
Onitsha branch as a contact point. It covers all the information of
relevant issues pertaining to the Nigerian capital market vis-à-vis the
Nigerian economy. It also take into account the role of SEC in
managing the crisis in the exchange and the role played by C.B.N.
Ultimately, the study elicited investor‟s response and positions as it
regards the exchange in the capital market. To achieve this, investors
in Enugu metropolis were elected.
In the case of the study, so many problems were encountered in
which in one way or the order challenge the easy floe of this work
a. Distance: In the course of the study, the research was faced
which challenge of actually traveling to Nigerian stock
exchange in Onitsha, C.B.N branch in Enugu, stock broking firm
in Enugu and Anambra.
b. Time: there was not enough time to meet up the time available
was managed effectively and efficiently.
c. Finance: At a time, it was difficult and almost impossible to
continue because of lack of finance.
d. Hoarding of information: some authority responsible for
approving the release of information necessary for this study
were not willing to approve the release of some of relevant
1.7 Significant of the Study
It is a noted fact that for any meaningful economic
transformation of a country to take place, her capital market must be
effectively active. It has also been an identified fact that economic
strength of any nation is measured according to how active or
effective her capital is in performing its supposed functions.
This study will be of significant interest to government and the
central bank of Nigeria as they are aware of the problems facing the
capital market and remedies to tackle the problems. The capital
market plays important roles in economic growth so with the
evaluation of the capital market, the efficiency of the capital evaluated
and increased, hereby enhancing the rate of economic growth in
Nigeria. The study will be significant to institutional operators of the
market especially the Nigerian Securities and Exchange Commission
and the future researchers who may want to share this experience.
This study will be of interest to investors who have been at the
receiving and of the crisis in the in the exchange. They will be able to
know the real cause of the problems, response of SEC and efforts
being made to protect their investment. The significance of this study
will provide foreign business with the facilities to offer their shores
and give the Nigerian public an opportunity to invest and participate
in the share and ownership or foreign business.
1.8 Organization of the Study
The study is divided into five chapters and organized as
follows. Chapter one form the introduction part, this is where the
main theme of the research is given. It comprise of the statement if the
problem, objectives of the study, research questions and hypothesis,
significance of the study and organization of the study. Chapter two is
the literature review of the impact of capital market of the economic
growth of Nigeria. Chapter three forms the research methodology
which includes sources of data method of data analysis and model
specifications. Chapter four is the data analysis. Chapter five includes
the summary, conclusion and recommendation.
1.9 Definition of Terms
For the purpose of this research, the under listed terms are defined
1. Stockbrokers: These are agents that buy and sell securities on a
stock exchange on behalf of clients and receive remuneration for
this service in form of a commission.
2. Stock Exchange: A market for the sale and purchase of
securities, in which the price are controlled by the law of supply
and demand. Nigeria stock exchange started in 1960 but
commence operation in 1961.
3. Stock Holder: individuals, businesses and groups owning stock
in a corporation.
4. Capital Market: A market in which long term capital is raised
by industry and commence, the government and local
authorities. The money comes from private investors, insurance
companies‟ pension funds and banks, and it is usually arranged
by issuing houses and merchant banks.
5. Financial Instrument: A contract involving a financial
obligation. Example includes stocks, bonds, loans and
6. Shares: A share confers on its owner a legal right to have part of
the company profits and to exercise any voting rights attached
to that share.
7. Securities and Exchange Commission (SEC): SEC is the
regulation arm of the Nigeria Capital Market.
8. Arbitrage Pricing Theory: A model proposed by Stephen Ross
in 1976 for calculating returns in securities. It assumes a number
of different systematic risk factor without however, definitely
identifying various types of risks.
9. Financial Institutions: These are institutions that use its funds
chiefly to purchase financial assets, deposits, bonds, loans and
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