THE IMPACT OF CAPITAL MARKET ON THE ECONOMY

(A CASE STUDY OF NIGERIAN STOCK EXCHANGE LAGOS)

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ABSTRACT

A country cannot accumulate or maintain real assets without mobilizing capital (savings). A country with a high savings rate is likely to record high investment level. How then can savings be efficiently accumulated and channelled into productive investments?

By virtue of the above statement, the best way for a country to get rid of persistence misfortune and mismanagement of public enterprise could be achieved through an efficient capital market operation. The capital market is responsible for mobilizing and channelling medium and long term funds are held for a minimum of five years to perpetuity. For medium-term funds into a productive investment such as fixed assets, typically, long term funds are held for a minimum of five years to perpetuity. For medium-term funds, corporate entities and governments hold funds, having maturity of more than one year but less than five years. While shot-term funds are held for a maturity less than a year.



TABLE OF CONTENT
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract v
Table of Contents vi-vii

CHAPTER ONE
1.1 Introduction 1-5
1.2 Statement of Study 5
1.3 Purpose of Study 6
1.4 Research question 7
1.5 Statement Hypothesis 8
1.6 Significance of the study 8
1.7 Scope and limitation of the study 8
1.8 Definition of terms 9

CHAPTER TWO
Review of Literature
2.1 Introduction 10
2.2 The role of operations of security market on the economy 11-14
2.3 The Stock Broking Firms 15
2.4 Issuing Houses 16
2.5 Share Register 17
2.6 Commercial Banks 17-19
2.7 Merchant Banks 20
2.8 Central Bank of Nigerian 21-22
2.9 Benefits of public Quotation 23-24


CHAPTER THREE
Research Methodology
3.1 Introduction 25
3.2 Restatement of research questions 25
3.3 Methods of data collection 26
3.4 Sampling Selection and size 26
3.5 Analytical tools 27
3.6 Conduct of Field Work
3.7 Method of Data Presentation, Analysis and Interpretation


CHAPTER FOUR
Data Presentation an analysis
4.1 Introduction 28
4.2 Data Presentation 28-30
4.3 Test of Hypothesis 30-37


CHAPTER FIVE
Summary, Recommendations and Conclusions
5.1 Summary 39
5.2 Recommendation 40
5.3 Conclusion 40-42
Bibliography 43-45
Proposal 46-49




CHAPTER ONE

1.1 INTRODUCTION
Industrialization and the provision of social and economic infrastructure process requires heavy investment by both the public and the private sectors.

Investment in this context refers to the accumulation of real (Asset) physical, assets, which are vital in the production process as distinct form financial asset. Investment is an essential element in the industrialization process and ultimately in economic development. Evidently, countries with high private domestic investment level exhibit faster growth rate.

A nation cannot accumulate to maintain real asset without mobilization of capital (saving). A country with high saving rate is very likely to record high investment level. How then can savings be efficiently accumulated and channelled into productive investment? This is a question which economy policy makers are saddled with from time to time. It is generally accepted that fostering of efficient financial markets should be paid off the encourage savings and investment.

By the virtue of the statement, the best way for a country to get rid of persistence misfortune and management of public enterprises could be achieved through an efficacy capital market operation.

Before we go further in the definition of capital market as the case study of this project, let us discuss the financial market which gives rise of the capital market and money market.

The financial market may be defined as a market for the financial resources and funds required by companies and organizations involved in productive processes. It can also be defined as a medium through which funds are mobilize and transferred efficiently from surplus unit to the users f funds. It functions through the interplay of individuals, institutions and instruments. By this singular function of mobilizing and transferring funds, the financial market bridges the saving and investment gap and stimulates capital formation in economic development.

The money market which is the first segment of the financial market, the market for short term funds and short term financial transaction. By its nature, the types of funds sourced in the money market are largely debt or loan funds.

To facilitate the transfer of funds in this market, a number of instrument universally used have been created the years. These include Treasury Bill, Certificate of Deposits, Commercial Papers, bankers acceptance and other short-term bank credit facilitates (i.e. overdraft).

Institutions which are peculiar to the money markets are commercial banks, finance and discount houses, central bank, Nigerian deposit Insurance market. The operators in the money bridge the gap between cash receipts and cash payments of companies through the usage of financial instruments.

CAPITAL MARKET:- Is responsible for mobilizing and channelling medium and long-term funds into productive investment such as Fixed Assets.

Typically, long-term funds are held for a period of five years to perpetuity. The capital market is regarded as the sustaining end of the financial markets. This because users of funds operates on a going concern basis, i.e. with the intention to remain in business and produce indefinitely and so such should be sustained through long term funding from the capital market. For medium term funds, corporate entities and governments hold funds having maturity of more than one year but less than five years.
In 1977, the Lagos Stock Exchange had its name changed to the Nigerian Stock Exchange with additional trading floors opened at Kaduna and Port-Harcourt.


CAPITAL MARKET IN NIGERIA
There are several ‘places’ for raising long-term capital market in Nigeria.

1. The Stock Exchange
The stock exchange is the market where:
i. Quoted companies can raise new funds by issuing new shares or loan stock; (this is the concept of the PRIMARY MARKET).
ii. Investors can pull up and sell ‘second hand’ stocks and shares (this is the fundamental concept of the SECONDARY MARKET).

iii. The Nigerian stock exchange (NSE) was incorporated in 1960 as Lagos Stock Exchange (LSE) which changed its name to NSE in 1977.
The functions of the NSE include:
- Facilitates the buying and selling of new and existing securities.
- It provides channels for long-term funds to commercial and industrial sectors.
- It enables those with surplus funds to invest in public limited liability companies on long-term bases.
- It facilitates attraction of foreign capital or investment into the Nigerian Economy.
- It serves as a referee between the investors and the dealers (stockbrokers)


2. THE SECOND – TIER SECURITY MARKET (SSM)
The SSM is a market for ‘second-hand’ shares. The SSM is regulated by the stock exchange.
3. THE ‘GILTS’ OR GILT EDGED MARKET
This is the market for the government’s long-term debt securities.
4. BANKS
Banks are approached directly by firms and individuals for medium term loans as well as short-term loan or overdraft.
5. MORTGAGE BANK
This is also a market where individuals obtain capital to buy or renovate their homes or real estate with mortgage facilities from mortgage banks.
6. INSURANCE COMPANIES
Insurance companies can lead directly to business entitles. They are a stable source of long-term capital. The impact of the capital market and be examined from various perspectives of the economy the issue and the investor. They include:
§ Capital Formation for Production
§ Capital Allocation
§ Creation of Employment Opportunities
§ A Measure of Economic Performance
§ A Safe Deposit for Investor
§ Benefits to Government

The companies in the capital market pay a certain percentage of their net profit on corporate tax. The investors in the companies also pay on dividends; in fact, the tax or divided is deducted at source.
The capital market, through its pricing mechanism, provided industrial management with some idea of the current cost of capital and this can be important in determining the level and rate of investment.


1.2 STATEMENT OF PROBLEM
One important issue as far as the survival of any country is concerned, is capital formation, i.e. investment that will increase the productive capacity of the country. As the economy grows and productive resource becomes fully employed, the necessity to reduce current consumption in order to increase capital formation becomes stronger.
1. The question does not limit supply of securities on the hand and the hand general weakness and insufficient demand for term on the other hand coupled with consequent “buying and holding” attitude towards portfolio investment not vigour well for any meaningful development of the Nigeria capital market.
2. Financial Assets: Securities exist because the saving (current income less expenditure) of various economic units in real asset while some sectors may save more than they invest, other may invest more than they save, over a period of time.
3. The exchange funds from saving: Surplus units to deflect unit one are evidence by the exchange of financial instrument which represent assets to the holder and liabilities to the issues.
4. How adequate is the level of awareness of investments in the Nigeria capital market about its operations and activities? Many investors still fail to claim their dividends and share certificates. Changes in address and other relevant information’s are not usually reported to the register.
5. Mis-management and misappropriate of funds are one of those problems confronting the capital market, by directors of companies quote on the stock exchange where funds were raised for their operations.

The growth and development of any capital market by directors of companies quote on the stock exchange, where funds were raised for their operations.

The growth and development of any capital market depends a lot on the trading system itself. Infrastructural inadequacies are major hindrances to such capital market development.

1.3 PURPOSE OF STUDY
This research is set to achieve the following purpose:
i. To place on record the history background and institution characteristics of the Nigeria stock exchange with the hope that by so doing, many Nigeria existing and potential investors alike will be better informed about the benefits derivable from patronizing the capital market via the Nigeria Stock Exchange (NSE).

ii. Market recommendation to improve the operational efficiency of the capital market in general but with special reference to Nigerian stock exchange.
iii. To bring to limelight the nature of operation and impact of the capital market, and its contribution to the economic growth and development of the Nigeria economy.


1.4 RESEARCH QUESTION
The research questions would be tested on the hypothesis of this research work. These include:
§ Are the increase members of quoted companies on the exchange market a medium of capital mobilization?
§ Does the Nigeria Stock Exchange serve as an agent of capital formation in economic?
§ Can the federal government raise fund through the stock market?
§ Are both optional capital structure and cost of capital best achieved through public quotation on the stock exchange?

1.5 STATEMENT OF HYPOTHESIS
H1: The Nigerian stock exchange serves as a medium of capital mobilization in the economy.
H2: That there is inadequate awareness of the activities of the capital market by the investigating public.
H3: That the delivery and transfer system used by the Nigerian stock exchange market operations are efficient and in pace with the development of information technology.
H4: That the federal government raise fund through the stock market.

1.6 SIGNIFICANCE OF THE STUDY
The capital market as presented by the Nigerian Stock Exchange Market (NSE) constitutes a vital organ of our modern social-economic system, which is characterized by a large scale production requiring large capital.

Our economic has witnessed a substantial amount of turbulence resulting from the fluctuating fortunes of our sector and mono-cultural nature of the economy.

This study is significant in as much as it at least top achieve the purpose stated in section 1.5.

1.7 SCOPE AND LIMITATION OF THE STUDY
This research covers the nature and operation of the capital market with particular reference to the Nigerian stock exchange and also it’s contribution and significant role in Nigeria economy.

The likely major limiting factors of this research study are as follows:
i. Finance: Due to the high cost of transportation, the research will not be able to visit all the branches of the stock exchange to see how trading activities are carried out ob their various floors and other relevant information.
ii. Lack of Assesses to some Vital Information: Due to pilferage and improper use, such as tearing off of relevant pages from textbooks, and any other such publication.
iii. Reluctance on the part of ht simple population to fill the questionnaire. The above limitation will be attended to by ensuring that the Lagos office of the stock exchanges and its library for the purpose of this research.



1.8 DEFINITION OF TERMS
In the course of this research study, some terms would be mentioned such as:
NSE: Nigerian Stock Exchange that is where the varicose operations meet to trade stocks.
SEC: Security and Exchange Commission that is the body that governs the operations of the stock exchange.
SSM: Second-Tier Securities Market


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