Role Of Capital Market In Economic Development
Capital markets play a pivotal role in driving economic development by efficiently allocating financial resources, fostering investment, and facilitating economic growth. These markets provide a platform for businesses and governments to raise long-term capital by issuing stocks and bonds, enabling them to fund expansion, innovation, and infrastructure projects. Additionally, capital markets promote liquidity and price discovery, which enhances market efficiency and encourages investment. By channeling savings into productive investments, capital markets spur entrepreneurship, job creation, and technological advancement, ultimately contributing to overall economic prosperity and stability. Furthermore, they encourage savings mobilization and wealth creation by offering diverse investment opportunities, thereby fostering a culture of financial inclusion and wealth accumulation among individuals and institutions.
The study delves into examining the role of the Nigeria market on economic development. To arrive at a detailed study, research questionnaires will be designed and administered to the group that will be selected. Nigerian capital market as we will observed serves as a capital mobilization and distributed amongst economic unit. It also provides a meeting point between those economic units that have surplus savings to invest and those units desirous to procure more capital funds to finance its difficulties. The objectives of this study, therefore looks at the problems and prospects of Nigerian capital market, to examine the activities of the Nigeria market in economic development, recommendations on how the activities of the Nigerian capital market can be improved to further aid economic growth in Nigeria. Some of the findings include that there are some problems facing the Nigerian capital market and the removal of which will lead to the development of effective Nigerian capital market. It was also discovered that the effective capital market will invariably lead to industrial and economic development by fund they mobilized. Finally as a result of the above findings, the following recommendations were made, government should make concerted effort at ensuring the development of capital market either by creating more funds or establishing more branches of the capital market in almost every state of the federation so that the public, government agencies, states, and local governments can easily finance their projects through the market with ease. Also government should liberalize the capital market so that market forces should be allowed to determine the price of securities and exchange commission.
Title page
Approval page
Dedication
Acknowledgement
Abstract
Table of contents
Chapter One
1.0 INTRODUCTION 1
1.1 General overview of the study 1
1.2 Statement of the problem 2
1.3 Objective of the Study 3
1.4 Scope of the Study 4
1.5 Statement of Hypothesis 5
1.6 Significance of the Study 5
1.7 Limitation of the Study 6
1.8 Definitions of Terms 7
Chapter Two
2.0 LITERATURE REVIEW 10
2.1 Introduction 10
2.2 Brief History of the Nigeria Capital Market 12
2.3 Rationale for the Establishment of Capital Market in Nigeria 16
2.4 Need for efficient capital market 17
2.5 The Structure of the Nigeria Capital Segments 18
2.6 The Roles of Capital Market ion Economic Dev. 19
2.7 Capital Market Instrument 21
2.8 Method of raising equities in the Nigerian capital market 24
2.9 Roles of Specialized Institution that Contribute to the Activities of the Nigerian Capital Market. 25
2.10 Problems of the Nigeria Capital Market and Economic Development 32
Chapter Three
3.0 RESEARCH METHODOLOGY 36
3.1 Brief Outline of the Chapter 36
3.2 Research Design . 36
3.3 Source of Data Collection 37
3.4 Method of the Data Collection 38
3.5 Population of the Study 38
3.6 Sample Size and Sampling Techniques 39
3.7 Method of Data Analysis 40
Chapter Four
4.0 PRESENTATION AND ANALYSIS OF DATA 42
4.1 Presentation of Data 42
4.2 Analysis of Data 53
4.3 Test of Hypothesis 53
Chapter Five
5.0 SUMMARY, CONCLUSION AND RECOMMENDATION 60
5.1 Summary 60
5.2 Conclusion 61
5.3 Recommendation 63
Bibliography 65
Appendix 68
INTRODUCTION
1.1 GENERAL OVERVIEW OF THE STUDY
The Nigerian capital market has always played a significant role in the economic growth and development of the nation. In times of economic boom, it assisted in the provision of finance for expansion, and establishment of productive facilities.
The term capital market is a complex institution and mechanism whereby medium and long term funds are pooled together and made available to large business, government and individuals and stock brokers licensed to perform capital market function. It is a market whereby existing instrument already outstanding are transferred. In current period of recession, it has been providing finance for maintaining existing facilities, diversification & acquisitions. Apart from its fund mobilization role, the capital market bring together those with surplus or idle funds who wishes to invest “ultimate lender” and those who wish to borrow “ultimate borrowers” for a medium or long term basis.
The capital market has grown so much that its importance cannot be over emphasized. Due to its varied roles, this research work will attempt to briefly give an overview and history of Nigerian capital market and discuss the role of Nigerian capital market in economic development which is the concern of this study.
1.2 STATEMENT OF THE PROBLEM
The Nigeria economic sector inspite of the great potentials has failed to achieve the great aim of converting Nigeria into a developed economy.
Second tier securities market was established to remove obstacles which militate against indigenous companies seeking quotation and to provide wider and cheaper long term, source of funding for small and medium sized indigenous companies.
Inspite of this most of our indigenous companies still shy away from the stock market. other problems include the requirement of stock exchange before quotation and the way the stock exchange has been developed over years and also the ignorance about the activities of the capital market.
Based on the above analysis, these questions arise, why do some sectors of the economy shy away from the capital market inspite of its numerous benefits? Are the disadvantages of capital market out weighing the advantages? This research work seek to answer these questions.
1.3 OBJECTIVE OF THE STUDY
This study is design to examine the role of the Nigerian capital market on economic development. Considering the fact that the ability of the government to carry through its capital programme depends on the availability of finance and that the economy remain undeveloped where fund is not available, hence, it is in the light of these I have chosen this topic to create general awareness among different sector of the economy how the Nigerian capital market can be of help to them. Therefore, the study is aimed at:
1. To examine the activities of the Nigeria capital market in economic development.
2. To know the problems and prospects of Nigerian capital market.
3. To make recommendations on how the activities of the Nigerian capital market can be improved. To further aid economic growth in Nigeria.
1.4 SCOPE OF THE STUDY
This study will as much as possible assess the Nigerian capital market. the rationale for its establishment, its roles and activities in the economy. It extends to the institutional operators of Nigerian capital market and their functions. Also it will outline the relevant factors hindering the activities of the Nigerian capital market and possible solution to the problems.
1.5 STATEMENT OF HYPOTHESIS
According to Mr. Aguwa (1998) there are two principal type of hypothesis Null (H0) and the alternative (H1) hypothesis. These hypothesis will be used in this research.
1. The Nigerian Capital Market mobilize adequate fund for economic development
2. The fund raising activities of the capital market relates to industrial production growth rate.
1.6 SIGNIFICANCE OF THE STUDY
This study “Role of capital market in economic development is designed for us to understand and appreciate the importance and functions of the capital market in shaping the Nigerian economic development landscape. The study is necessary because this suggestion and recommendations from the study is of great benefit to the government, individual investors, businesses and the general public. It encourages researchers, Investigators academics and professional on the need fro more research work and for more studies on those issue. And also it contributes to knowledge.
1.7 LIMITATION OF THE STUDY
The problems encountered in the course of this study includes:-
Time:- The time available to the researcher was not sufficient enough as to enable an extensive research into the topic as the researcher has to combine lectures, tests, assignments as well as semester examination.
Finance:- the great financial constraint the researcher encountered limited her transportation and the high cost of periodicals also militated against the research exercise.
Data:- traveling round to get the necessary data was not easy. Some staff of Nigerian stock exchange were in most cases unwilling to part the necessary information thus hindering the research.
1.8 DEFINITION OF TERMS
For the purpose of this research, the following operational terms shall be used and are hereby defined as follows.
CAPITAL MARKET:- This is a market in which financial assets with maturity of more than one year are bought and sold.
STOCK BROKERS:- it refers to the individuals or firm which engages in the sell or purchase of stock on behalf of the public limited liability company and the investors for a commission called brokerage.
ISSUING HOUSE:- This refers to investment banks or merchant banks which generally conducted the activities of a company which is to be quoted on the stock market. They are advisers as well as marketers of the firms shares. They receives payments or commission for their services.
STOCK:- This refers to the certificate of ownership of a firm. It is the right of ownership to a company. The stock owner has the right to a company.
FINANCIAL MARKET:- It I an institution that brings buyers and sellers of assets together (ie a market where financial assets and financial liabilities are brought and sold.
BOND:- It is a credit instrument and the holder is a creditor who receives a specified amount of interest and the bonds face value when matures.
JOBBERS:- Are stall holders in the market, buying shares from and selling shares to brokers acting on behalf of the public.
RIGHTS ISSUE:- These are new shares offered to an existing shareholders at a more favourable price than they will be offered to the general public.
CAPITAL:- This is the propelling factor of economic development
INVESTOR:- A person or institution who uses savings or borrowings to buy securities.
OFFER FOR SALE:- this is a system whereby existing shareholders offer their share holding or part of them for public subscription.
Role Of Capital Market In Economic Development:
The capital market plays a crucial role in the economic development of a country by facilitating the flow of funds between investors and borrowers. It serves as a platform for buying and selling financial instruments such as stocks, bonds, and other securities. Here’s how the capital market contributes to economic development:
- Mobilization of Savings: The capital market provides a channel for individuals, corporations, and governments to invest their surplus funds. This helps in mobilizing savings from various sources and directing them towards productive investments, such as infrastructure projects, businesses, and research and development.
- Allocation of Resources: Through the capital market, funds are allocated to projects and businesses with the highest potential for growth and profitability. This efficient allocation of resources ensures that scarce capital is directed towards ventures that can generate significant economic returns.
- Investment and Innovation: Capital markets provide businesses with access to funding for expansion, research, and innovation. Companies can raise equity capital by issuing shares or debt capital by issuing bonds. This access to funds encourages innovation, job creation, and the development of new technologies, which in turn contributes to economic growth.
- Wealth Creation: As businesses grow and succeed due to capital market funding, the value of their shares or equity increases. This leads to wealth creation for investors, who can benefit from capital appreciation and dividends. This increase in wealth encourages individuals to invest further and stimulates overall economic activity.
- Liquidity and Flexibility: Capital markets provide liquidity to investors by allowing them to buy and sell financial instruments easily. This liquidity ensures that investors can exit their investments and access cash when needed, which boosts confidence and encourages more participation in the market.
- Facilitation of Government Borrowing: Governments can raise funds by issuing bonds in the capital market. These funds can be used for various public projects, such as infrastructure development, education, healthcare, and more. Efficient government borrowing through the capital market reduces the pressure on the budget and fiscal deficit.
- Job Creation and Economic Growth: Capital market investments lead to the growth of industries, which in turn creates job opportunities. As companies expand and new businesses emerge, they require a workforce, contributing to reduced unemployment rates and overall economic growth.
- Risk Diversification: Capital markets offer a variety of investment options, allowing individuals and institutions to diversify their portfolios. Diversification helps in spreading risk, as losses in one investment can be offset by gains in others. This encourages a more stable investment environment and attracts a wider range of investors.
- Increased Corporate Governance: Companies that are publicly listed on stock exchanges are subject to regulatory and reporting requirements. This promotes transparency, accountability, and good corporate governance practices. Improved governance enhances investor trust and confidence in the market.
In summary, the capital market is a crucial component of economic development. It facilitates the efficient allocation of resources, encourages investment and innovation, generates wealth, and supports job creation. By providing avenues for raising funds, the capital market contributes to the growth of industries, infrastructure, and overall economic prosperity.