AN EVALUATION OF THE PERFORMANCE OF NIGERIAN STOCK EXCHANGE IN THE ECONOMIC DEVELOPMENT OF NIGERIA (A CASE STUDY OF NSE KADUNA BRANCH)
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AN
EVALUATION OF THE PERFORMANCE OF NIGERIAN STOCK EXCHANGE IN THE ECONOMIC
DEVELOPMENT OF NIGERIA
(A CASE STUDY OF NSE KADUNA BRANCH)
ABSTRACT
The
purpose of this project is to evaluation of the performance of the Nigerian
stock exchange (NSE) in Nigeria
and to the over all financial development of the economy. It would be noted
that the success of an industry of firm depends largely on the capital
recourses available to the industry and this will also be reflected in the
development of the economy. It has been noted that with the cost importance of
the capital market a lot has been achieved by the nation. It can be noted that
capital investment is what is needed for Nigerian firms to break into the big
economics this work. It contends that the capital market needed to be enhanced
so as to effectively channel those resources to industries and firm. The
methodology used in achieving the findings include gathering information from
annual publications and fast books of the stock exchange business journals,
annual publication from the central bank of Nigeria e.t.c A good capital market
wit have a positive influence or effect I industrial financing. Industrial
development in the country can be a determination of the financial resources
available to it. This relationship between the capital market and the financing
is a visual circle. If capital is made available for financing projects more
fires and organizations will be listed on the stock exchange and this will
enhance resources available both to a country and the living populace.
However,
some recommendations have been given in the work to the operations of the
market to help in overcoming the present problems faced by the stock exchange.
TABLE OF CONTENT
Title
page
Declaration
Approval
page
Dedication
Acknowledgement
Abstract
Table
of content
CHAPTER
ONE
1.0
Introduction
1.1 background of the study
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Scope of the study
1.5 Research questions
1.6 Significance of the study
1.7 Historical background of the Nigeria Stock
Exchange in the Economic Development
1.8 Definition of terms
CHAPTER TWO
Literature
review
2.1 Introduction
2.2 Stock exchange of other countries
2.3 The role of Nigeria
stock exchange in Nigeria
economy
2.4 Government role in the operating of the
stock market
2.5 The general management and control of the
Nigeria Stock Exchange.
2.6 Capital Formation in Nigeria Stock Exchange
2.7 The Concept of economic Development in the
Nigeria Stock Exchange
2.8 Transition of Lagos
Stock Exchange to Nigeria
Stock Exchange
CHAPTER THREE
Research
methodology
3.0 Introduction
3.1 Method of data collection and Sources
3.2 Population and sample size
3.3 Sampling Techniques and Limitation
3.4 Method of Data Analysis
3.5 Justification for the choice
CHAPTER FOUR
Data
presentation, analysis and interpretation
4.1 Introduction
4.2 Data presentation and analysis
4.3 Testing of hypothesis
4.4 Summary of findings
CHAPTER FIVE
Summary,
conclusion, Limitation and recommendations
5.1 Summary
5.2 Conclusion
5.3 Limitation of the study
5.4 Recommendation
Bibliography
Appendix
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A buoyant and dynamic economy is the one built upon a
sound financial system. Such finical system should be stimulated and maintained
by the effective activities of an efficient capital market, which is the head
of the “Stock Exchange”.
The stock exchange therefore is the market where
companies, raise capital on a short term and long term basis. This role of
mobilization and allocation of funds to every sector of the economy which made
it (Stock Exchange), the toast of investors has given it a pride of plan in
every economy. There is no doubt, that the success or failure of every sector
in the economy rests to every large extent on its stock exchange market. This
is because for any sector in the economy to grow an efficient means of capital
formation must not be ignored considering the importance of capital in any organization
setting.
Since the establishment of the Nigerian stock exchange
(NSE) some forty two years back (42) elements of stagnation, dormancy and unproductiveness
in the economy is being experienced despite the tremendous development in the exchange
systems. This situation has taken a worrisome dimension in which many questions
are being raised on the relevance of the Nigerian stock exchange in
facilitating investments in the Nigerian economy.
1.1 AN OVERVIEW OF THE BACKGROUND OF THE STUDY
There was no organized financial market or institution in
Nigeria
prior to the establishment of the central bank of Nigeria (CBN) by the Act of
parliament in 1958. Consequently, surplus funds of the financial system were invested
abroad there by starving the economy of the mush – needed capital for general
development. But immediately the central bank of Nigeria came into existence, the
banks started pioneering the development of Nigerian financial market
comprising the money market for short-term funds.
The development of the Nigerian money market for short
term funds started in 1960 with the issue of the first Central Bank of Nigeria
Treasury Bills. Subsequently, other short-term debt instruments such as
Treasury certificates, commercial Bills, certificate of Deposits e.t.c were
introduced by Central Bank to increase the volume and depth of the money
market.
The first attempt of developing the Nigeria capital market can be traced to the year
1959, when the Central Bank of Nigeria
floated the First Nigerian Development loan stock on behalf of the Federal Government
of Nigeria. The capital market was divided into two (2) categories. The primary
market which deals in new issues and the secondary market which deals in old securities,
all in the stock exchange. In Nigeria,
capital market is regarded as the stock exchange because of the integral part
it plays in the stock exchange market. It is involved in many financial
activities around which all other operators in the capital market revolve one
the other hand, the capital market comprises of various participants and they
are broadly divided into four (4) categories, namely.
1.
The provider of funds
for investors who could be individuals unit, trust and other corporate bodies.
2.
Users of funds, which
comprises of companies and the government.
3.
interim diaries,
facilities which includes stock broking firm, issuing houses and registrar
4.
Regulators these
includes Securities and Exchange Commission (SEC), the Nigeria Stock Exchange
(NSE).
As can be seen above the provider of funds essentially
comprises of individual and companies, while the users of the funds issuer of securities
are expected to be government and corporate bodies. in other words, individual
may not be able to raise money from capital market as they can do in money
market.
However, the stock exchange is one of the key
institutions in the capital market which is a network of individual
institutions and instruments involve in efficient channel of funds from the
surplus economic unit to deficit economy unit. It plays a central and indispensable
role in the market because the opportunity offers for subsequent trading in the
existing securities has made it a decisive factor in the success or otherwise
the efficiency. Thus, the availability of a secondary market engenders
formation and social economic development.
Hence, the Nigeria Stock Exchange (NSE), which constitutes
the hallmark of the Nigerian capital market, plays an important part in the
economic life of the nation. Through its functions, the stock exchange enables
government and industry to raise long term capital and finance developmental
project and expansion and modernization of individual and or commercial
concern.
It is sad to note that despite the various functions it
performance in our economy, its performance as well as its contributions to the
development of the economy is not adequate when compared with the investment
made in the Nigerian stock exchange.
1.2
STATEMENT OF THE PROBLEM
It is widely reported that the Nigerian Stock Exchange
(NSE) has not contributed adequately as desired to the development of the
economy especially with regard to investment in Nigeria this is due to certain
reasons:
1.
Low public awareness
of finance possibilities of the Nigerian stock exchange market.
2.
Inadequate trading
floor to meet the demand of the public.
3.
poor infrastructure
such as telecommunication, electricity etc to facilitate its activities
4.
High cost of
transaction.
5.
Lack of venture
capital and weak savings mechanism.
It is along these that efforts will be made in this study
to bring to notice the validity of these and other allegations leveled against
the Nigerian Stock Exchange over the years.
1.3 OBJECTIVE OF THE STUDY
The study is being undertaken with various specific objectives
in mind, some of which includes:
i.
To examine the
activities and the performance of the Nigerian Stock Exchange (NSE) in
facilitating investment in Nigerian.
ii.
To identify the
contributions of the stock exchange in the development process of the Nigerian economic
activities.
iii.
To assess the major
problems facing the stock exchange and as against its performance.
iv.
To recommend measures
to be taken to tackle the problems of the stock exchange based on the findings.
v.
To bring to notice
the anticipating impact of the stock exchanges i.e. the central securities
clearing system (CSC).
The findings from the study is hoped to assist policy
markets to take appropriate action or decision towards improving the activities
of the stock exchange as well as in curbing the problem facing the exchange.
1.4
SCOPE OF THE STUDY
Basically, this study will cover the activities and
performance of the Nigeria
stock exchange (NSE) ideal with such aspect as the historical background or
evolution of the stock exchange, capital formation as well as the role of the
Nigerian Stock Exchange others areas will include legal framework, members and
governance operations, listings requirement and instrument listed on the stock
exchange.
1.5
RESEARCH QUESTIONS
This study will examine the activities and performance of
the Nigerian stock exchange with the aim of finding out the extent to which it
has contributed to the development of the Nigerian economy especially in facilitating
investments opportunities. The following questions are therefore raised to
guide the study.
i.
To what extent has
the stock exchange provides necessary liquidity mechanism for investors through
a formal market for debt and equity securities?
ii.
To what extent has
the stock exchange contributed to capital formation as well as gross domestic
product (GDP) in the Nigeria
economy?
iii.
How true is the
allegation that the Nigerian stock exchanges activities are note made public to
many individual investors as well as to companies in Nigerian?
iv.
To what extent has
the policy of expanding the geographical coverage of the stock exchange
activities been successful.
1.6
SIGNIFICANCE OF THE STUDY
It is a widely held view among economists and financial
scholars that the economic growth and development of any economy depends on the
level of capital formation of that economy. Nigeria’s low level of economic
advancement has largely been attributed to the inability of the Nigerian Stock
Exchange to mobilize and allocate the much needed investiables capital
efficiently.
Therefore, any research efforts in these directions will
contribute immensely in addressing the country’s economic problems. The findings
of this research could be of tremendous benefit to policy maker particularly in
the current effort to sensitize the capital market support it and make it viable
as well as international standard.
The economy and the investing public could also benefit
significantly from the result of the investigation, large number of Nigerians
even though having large sum of investigable funds, are either completely
ignorant or are not well informed about the operation of the stock exchange.
This unfortunate state of affairs is responsible for the large size of money
outside the financial system and consequently, the low level of investment in
the economy, on the other hand many Nigerians who are ready to operating their
own enterprises they do no know were and how to obtain additional funds to
increase their operations.
The research work is also intent to help reverse the
trend by providing necessary information about the activities of the Stock
Exchange to the public especially the investing
public.
1.7 HISTORICAL BACKGROUND
OF THE NIGERIA
STOCK EXCHANGE IN THE ECONOMIC DEVELOPMENT OF NIGERIAN.
The need to mobilize financial resources by government
can not be over emphasized as the country development need for outstripped
Its revenue generation capacity. Experience in Nigerian
has shown that revenue from taxation and statutory allocation alone are not
sufficient to finance the current and capital expenditure of most government of
the federation. It is therefore imperative for them to look for other sources
of capital inflows to close their resources gaps.
As a matter of fact the need to finance growing budgets
deficits from 1958 and the deteriorating balance of payment form the year 1950
Were some of the consideration for government support of
the business community in setting up the lagos stock exchange in 1977 the stock
exchange was also inspired by government due to the understanding that a viable
capital market could be relied upon to finance industrial development in particular
and nation economic growth in general on the other hand the money market
represent the short-term end of the nation. Financial market comprising
essentially
Short-term loans and obligations with maturely of about a
year it is an institutional arrangement through which individuals and
institution with temporary surplus funds meets borrowers who have temporary
funds shortages. The money market to manage liquidity. Therefore, one of the
working capital needs of companies and to provide government with short-term
funds in lice of tax collection.
The capital market on the other hands is the section of
the financial statement which provides medium of business and government. Reusing
of funds in the capital market makes the construction of factories, office building,
highway, bridges and acquisition of machine possible an efficient capital market
they are mobilizes the nations capital resources and allocate them for the
overall growth of the economy. If capital resources are not provided to these
economic arrears, especially industries, where demand is growing and which are
capable of increasing production and productivity the rate of expansion of the economy
will definitely suffer.
1.8 DEFINITION
OF TERMS
The relevant terms which are used in this research work
that may be new to the reader are defined or explained below.
a. Security:
These are written document or prints financial documents by which the claims of
a holder in specific properties are secured; they could be share, bounds and
debentures traded on the stock exchange.
b. Stock
and shares: They are instrument representing partial ownership interest in
a business enterprise. The enterprise entitle the holder to a proportional
right over the profit known as dividend.
c. Bond
and debenture: they are kinds of securities. They are legal documents
representing a promise by the company or by government (in case of bound0 to
pay back a loan, plus a certain of interest over a specific period of time.
d. Investment: The spending of money for purposes other than consumption
in order to earn income from it or to realize a capital gain at a later date.
It includes the purchase of stock exchange securities, government stock, life
insurance and policies.
e. Stock
exchange: A stock exchange is an
organized market were large and small investors alike buy and sell stock
through stockbrokers, the stock and share of companies and government agencies.
f. Stockbroker: A firm or a person who buy and sell securities on behalf
of investors for a commission called brokerage. The commission exchange
regulated by the stock exchange.
g. Jobbers: These are dealers engaged in whole-selling of securities
on a stock exchange market but do not deal with public, they only deal with the
brokers and other jobbers.
h. Listing/quotation: Listing is an omission in to official list of exchange.
To be listed is synonymous with the word “to be quoted” and this entitled the
securities to be quoted on the exchange.
i. Registrar: A registrar is a common place it is where records in
respect to quoted stocks and shares are kept.
j. Unit
trust: This is an instrument
whereby people pool their subscription together under a trust deed. The scheme
involves on one hand, a managing and on the other hand a trustee, which is
usually a company, very often a bank or insurance company.
k. Cum-Dividend: This is sometimes written as “co’ and it means that
shares are transferred with dividends.
l. Ex-dividend
or “XD”: It is a financial
expression for without dividend. A declared in that period for its new
owner(s).
m. Market
capitalization: The value of a firm
as determined by the market place of its issued and outstanding common stock.
n. Central
securities clearing system (CSCS):
This is a computerized subsidiary company of the Nigeria Stock Exchange (NSE)
put in place to expedite the settlement delivery and custodian traded in the
stock exchange. The CSCS was commissioned and commence full operation on 8th
and 14th April 1997 respectively.
o. Secondary
market: The market in which stock
is traded after being issued in a primary market.
p. Primary
market: This is the market for
initial offer of securities as when a company makes its initial contact with
the public in search of public fund, initial corporate capital or additional by
already existing or quoted company.
q. Second tier
securities market: This is the market
where small and medium scale companies have their shares listed on daily basis.
r. Common
stock: Equity securities having
last cliam or residual assets and earning of a corporation.
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