THE STUDY OF THE IMPACT OF STOCK EXCHANGE MARKET ON THE NIGERIA ECONOMY

THE STUDY OF THE IMPACT OF STOCK EXCHANGE MARKET ON THE NIGERIA ECONOMY.

 

ABSTRACT

The impact of the stock exchange market on the Nigeria economy as a vehicle for growth is well known in the literature. However, it is argued that under-developed economies may not experience the expected growth due to the poor deepening of the market. The paper examines the impact of stock exchange market on the Nigerian economy.

The study is apt as it evaluated the impact of the stock exchanges market in the provision of the much needed long-term funds for the industries to stimulate growth that assists the government to meet its developmental goals within the economy. It conducts a multiple regression and uses market variable that are considered very crucial to the survival of the market. The result support existing literature about the impact of stock exchange market on the economy and provides better insight into the activities of the market. It also suggest that all aspects of the market included in the study are essential ingredient for the growth of the Nigerian economy.

 

 

TABLE OF CONTENT

Title page                                                                 i

Certification                                                             ii

Dedication                                                               iii

Acknowledgement                                                    iv

Abstract                                                                   vi

Table of content                                                       viii

CHAPTER ONE: INTRODUCTION  

1.1   Background of the study                                  1

1.2   Statement of the problem                                        5

1.3   Objectives of the study                                     6

1.4   Significance of the study                                  7

1.5   Research questions and hypotheses                        8

1.6   Scope and delimitation of the study                9

1.7   Organization of the study                                         9 

CHAPTER TWO: LITERATURE REVIEW

2.1   Introduction                                                     11

2.2   Stock exchange market and economic growth         12

2.1.1  Definition of stock exchange market                        18

2.2.3 Overview of the nigeria stock exchange market                                             19

2.2.4 The nigeria security and exchange Commission                                                     23

2.2.5 The Nigerians stock exchange                          26

2.2.6 Economic growth                                            28

2.2.7 Impact of stock exchange market on economic growth of Nigeria                              29

2.3   Empirical review                                              31

2.3.1  Empirical review on other countries                        32

2.3.2  Empirical review on Nigeria                             34

CHAPTER THREE:  METHODOLOGY OF RESEARCH          

3.1   sources of data                                                38

3.2   method of data analysis                                   38

3.3   model specification                                          39

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1   data presentation                                             41

4.2   presentation of results                                     44

4.3   discussion of result                                         45

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1   Summary                                                         48

5.2   Conclusion                                                      50

5.3   Policy recommendation                                    51

References                                                       54

 

 

CHAPTER ONE

1.0   INTRODUCTION

1.1   BACKGROUND OF THE STUDY 

The stock exchange market is a highly specialized and organized financial market and indeed essential agent of economic growth because of its ability to facilitate and mobilize sarong and investment to a great extent, the positive relationship between capital accumulation real economic growth has long been affirmed in economic theories (Anyanwu,1993)

Success in capital accumulation and mobilization for development varies among nations, but it is largely dependent on domestic savings and inflow of foreign capital. Therefore, to arrest the menace of t he current economic, downturn, effort must be geared towards effective resource mobilization. It is in realization of this that consideration is given stock exchange market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors.

The development of stock exchange market on Nigeria, as in other developing comities has been induced by the Government. Prior to the establishment of stock market in Nigeria, there existed some less formal market arrangement for the operation of stock exchange market.

It was not prominent unit the visit of 1 Mr. J.B. Lobynesion in 1959, on the invitation of the Federal Government, to advice on the role the Central Bank could play on the development of local money and stock exchange market. As a following to this the Government commissioned and set up the Bareback committee to study and make recommendation on the ways and means of establishing a stock market in Nigeria as a formal stock exchange market. Acting on the recommendation of the committee the Lagos stock Exchange (as it was called them) 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) with the establishment of the Central Bank of Nigeria in 1959 and the coming into existence of the Lagos stock Exchange in 1961 and subsequently, the Nigeria stock Exchange by an act in 1979, a sound foundation was  laid for the operation of the Nigeria stock Exchange market for trading on securities of long term nature needed for the finances of the industrial sector and the economy at large. After the incorporation of the Lagos Stock Exchange, it was granted.

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. Hoverer, the Lagos Stock Exchange was only operational in Lagos. By the mid 1970’s the need for an efficient financial system for the whole nation was emphasized and a review by the Government of the operations of the Lagos stock Exchange market was advocated. The review was carried out to take care of the low capital formation, the unsatisfactory demarcation between the operation fo commercial Banks and the emerging class of the Merchant Banks, and the extremely shallow depth of the capital.

In response to the problem mentioned, above, the government accepted the principle of decentralization but opted for a National Stocks Exchange which will have branches in different parts of the country. On December 2nd 1977, the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigeria Stock Exchange, with broaches in Lagos, Kaduna, Port-Harcourt, Yola and now in Federal Capita Territory (FCT) Abuja and some other cities. The history of Nigeria Stock Exchange market could be traced to 1946 when the British colonial administration floated a N600,000 local loan stock bearing interest at 3 ¼ % for the financing of developmental projects under the Ten Years Plan Local ordinance. The loan stock, which had a maturity of 10-15 years, was oversubscribed in more than N1million; yet local participation of the issue was terribly poor. Certainly potential fund abound in Nigeria, but the overriding consideration in this project is to examine the impact of the stock exchange market in harnessing and mobilizing these resource (fund) to generate economic growth in the country and consequently economic development.

1.2   STATEMENT OF THE PROBLEM

There is abundant evidence that most Nigeria business lack long-term capital. The business sector has depended marshy on short-term financing such as overdraft to finance even long-term capital. Based on the maturity matching concept, such financing is risky. All such form need to raise an appropriate mix of short and long term capital (Demirguc-Kunt & Lerine 1996).

Most recent literatures on the Nigeria stock exchange market have recognized the tremendous performance the market has recorded on recent times. However, the vital role of the stock exchange 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 to contribution of the stock exchange market in the Nigerian economic growth and development. Aside the social and intuitional factors inhibiting the process of economic development of Nigeria, the bottleneck created by the death of finance to the economic constitutes a major setback to its development. As a result, it is necessary to evaluate the Nigeria stock exchange market.

1.3   OBJECTIVES OF THE STUDY

The broad objective of this study examined the activities and performance of Nigeria stock exchange market. The specific objectives of the study are as follows:

  1. To examines the operations of the Nigeria Stock Exchange Market.
  2. To evaluate the performance of the stock exchange market in relation to the economic growth in Nigeria.
  3. To examine the rate at which new stock are issued on the stock exchange market.
  4. To make recommendations as to how to operations of the market could be improved to boost economic growth and development of Nigeria.

1.4   SIGNIFICANCE OF THE STUDY

The study explored the impact or effectiveness of stock exchange market instruments on Nigeria economic growth through the scope of the study was limited to the stock exchange market, it is hoped that the exploration of this market will provide a broad view of the operations of the stock exchange market. It will contribute to existing literature on the subject matter by investigating empirically the role, which the stock exchange market plays in the economic growth and development of the country. The main importance of this study is that it will provide policy recommendation to policy markers on ways to improve operation and activities of the stock exchange market.

1.5   RESEARCH QUESTIONS AND HYPOTHESES

This research was guided by the following research questions

  1. How is the operation of Nigeria stock exchange market?
  2. What is the performance of the stock exchange market in relation to economic growth in Nigeria?
  3. What is the rate at which new stock are issued on the Nigerian stock exchange market?
  4. How could the stock exchange market through its crucial role stimulate economic growth in Nigeria?

The hypothesis that would be tested in the course of this research is stated below as:

Ho1: That the stock exchange market operation have no impact on Nigeria economic growth.

1.6   SCOPE AND DELIMITATION OF THE STUDY

The economy is a large component with lot of diverse and sometime complex parts this research work only looked at a particular part of the economy (the financial sector). This word did not cover all the facts that make up the financial sector, but focus only on the stock exchange market and its activities as it impacts on the Nigeria economic growth. The empirical investigation of the impact of the stock exchange market on the economic growth in Nigeria was restricted to the period between 1980 and 2009 due to the non –availability of some important data.  

1.7   ORGANIZATION OF THE STUDY

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

Chapter one from the introduction part, this is where the mown theme of the research is given. It comprises the statement of the problem, objectives of the study, research question and hypothesis, significance of the study, scope and delimitation of the study and organization of the study.

Chapter two is the literature review of the impact of stock exchange market on the economic growth of Nigeria.

Chapter three from the research methodology which includes sources of data, method of data analysis and model specification.

Chapter four is the data analysis while chapter five includes the summary, conclusion and recommendation.

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