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Act fast and get out of financial stress, mess, and challenges contact REBECCA WILLIAMS LOAN FIRM today via e - mail: Sunday, 11 December IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH OF NIGERIA. 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.

Success in capital accumulation and mobilization for development varies among nations, but it 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 that consideration is given to measure for the development of capital market as an institution for the mobilization of finance from the surplus sectors to the deficit sectors. The development of capital market in Nigeria, as in other developing countries has been induced by the government.

Though prior to the establishment of stock market in Nigeria, there existed some less formal market arrangements for the operation of capital market.

It was not prominent until the visit of Mr. Lobynesion in , on the invitation of the Federal government, to advice on the role the Central Bank could play in the development of local money and capital market. As a follow-up to this, the government commissioned and a set up the Barback Committee to study and make recommendations on the ways and means of establishing a stock market in Nigeria as a formal capital market.

With the establishment of the Central Bank of Nigeria in and the coming into existence of the Lagos Stock Exchange in and Subsequently, the Nigeria Stock Exchange by an Act in , a sound foundation was laid for the operation of the Nigerian Capital Market for trading in securities of long term nature needed for the financing 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. However, the Lagos Stock Exchange was only operational in Lagos. The review was carried out to take care of the low capital formation, the huge amount of currency in circulation which was held outside the banking system, the unsatisfactory demarcation between the operation of Commercial Banks and the emerging class of the Merchant Banks, and the extremely shallow depth of the capital.

In response to the problems mentioned above, the government accepted the principle of decentralization but opted for a National Stock Exchange, which will have branches in different parts of the country.

On December 2nd , the memorandum and article of association creating the Lagos Stock Exchange was transformed into the Nigerian Stock Exchange, with branches in Lagos, Kaduna, Port-Harcourt, Yola and now in Federal Capital Territory FCT Abuja some other cities. The loan stock, which had a maturity of years, was oversubscribed by more than N1 million, yet local participation of the issued was terribly poor.

Certainly, potential fund abound in Nigeria, but the overriding consideration in this project is to examine the impact of the capital market in harnessing and mobilizing these resources fund to generate economic growth in the country and consequently economic development. There is abundant evidence that most Nigerian businesses lack long-term capital. The business sector has depended mainly on short-term financing such as overdrafts to finance even long-term capital.

Based on the maturity matching concept, such financing is risky. Most recent literatures on the Nigeria capital market have recognized the tremendous performance the market has recorded in recent times. However, the 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 the Nigerian economic growth and development.

Aside the social and institutional factors 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 development.

As a result, it is necessary to evaluate the Nigerian capital market. The broad objective of this study examined the activities and performance of Nigerian capital market. The specific objectives of the study are as follows: To examines the operations of the Nigerian capital market. To evaluate the performance of the capital market in relation to the economic. To examine the rate at which new stocks are issued on the capital market.

Though the scope of the study was limited to the capital market, it is hoped that the exploration of this market will provide a broad view of the operations of the capital market. It will contribute to existing literature on the subject matter by investigating empirically the role, which the capital market plays in the economic growth and development of the country. The main importance of this study is that it will provide policy recommendations to policy-makers on ways to improve operations and activities of the capital market.

How is the operation of Nigeria capital market? What is the performance of the capital market in relation to economic growth in Nigeria? What is the rate at which new stocks are issued on the Nigerian capital market. How could the capital 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: That the capital market operations have no impact on Nigerian economic growth.

This work did not cover all the facets that make up the financial sector, but focus only on the capital market and its activities as it impacts 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 and due to the non-availability of some important data.

The study is divided into five 5 chapters and organized as follows: Chapter one form the introduction part, this is where the main theme of the research is given.

It comprises of the statement of the problem, objectives of the study, research questions and hypotheses, 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 capital market on the economic growth of Nigeria.

Chapter three forms 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 recommendations. Capital market is defined as the market where medium to long terms finance can be raised. The capital market is the market for dealing that is lending and borrowing in long term loanable funds. Substantial academic literature and government strategies support the finance-led growth hypothesis, based on an observation first made almost a century ago by Joseph Schumpeter that financial markets significantly boost real economic growth and development.

Schumpeter asserted that finance had a positive impact on economic growth as a result of its effects on productivity growth and technological change. As early as the World Bank also endorsed the view that financial deepening matters for economic growth "by improving the productivity of investment". Mbat described it as a forum through which long term funds are made available by the surplus to deficit economic units.

It must however, be noted that although all surplus economic units have access to the capital market, not all the deficit economic units have the same easy access to it.

The restriction on the part of the borrowers is meant to enforce the security of the funds provided by the lenders. In order to ensure that lenders are not subjected to undue risks the borrowers in the capital need to satisfy certain basic requirement. It has very profound implication for the socio-economic growth and development of any nation.

Investors Access to Affordable Credit. In principle, the capital stock market is expected to accelerate economic growth, by providing a boost to domestic savings and increasing the quantity and the quality of investment.

The market is expected to encourage savings by providing individuals with an additional financial instrument that may better meet their risk preferences and liquidity needs.

Better savings mobilization may increase the saving rate. The capital market also provides an avenue for growing companies to raise capital at lower cost.

In addition, companies in countries with developed stock market are less dependent on bank financing, which can reduce the risk of a credit crunch. Capital market offers access to a variety of financial instruments that enable economic agents to pool, price and exchange.

Through assets with attractive yields liquidity and risk characteristics, it encourages savings in financial form. This is very essential for government and other institutions in need of long term funds and for suppliers of long term funds. Based on the performance of capital market in accelerating economic growth, government of most nations tends to have keen interest in its performance.

Economic growth is generally agreed to indicate development an economy, because it transforms a country from a five percent saver to a fifteen percent saver.

Thus it is argued that for capital market to contribute or impact on the economic growth in Nigeria, it must operate efficiently. Most often, where the market operate efficiently, confidence will be generated in the minds of the public and investors will be willing to part with hard earned funds and invest them in securities with the hope that in future they will recoup their investment.

Ewah et al, The theoretical explanation on the nexus between capital market and economic growth is further expanciated using Efficient Market Hypothesis EMH developed by Fama in According to EMH, financial markets are efficient or prices on traded assets that have already reflected all known information and therefore are unbiased because they represent the collective beliefs of all investors about future prospects.

Previous test of the EMH have relied on long-range dependence of equity returns. It shows that past information has been found to be useful in improving predictive accuracy. This assertion tends to invalidate the EMH in most developing countries. Equity prices would tend to exhibit long memory or long range dependence, because of the narrowness of their market arising from immature regulatory and institutional arrangement.

They noted that, where the market is highly and unreasonably speculative, investors will be discouraged from parting with their funds for fear of incurring financial losses. In situations like the one mentioned above, has detrimental effect on economic growth of any country, meaning investors will refuse to invest in financial assets.

The implication is that companies cannot raise additional capital for expansion. Thus, it suffices to say that efficiency of the capital market is a necessary condition for growth in Nigeria.

Ariyo and Adelegan contend that, the liberalization of capital market contributes to the growth of the Nigeria capital market, yet its impact at the macro-economy is quite negligible.

In another exposition, Gabriel as enunciated by Nyong lay emphasis on the Romanian capital market and conclude that the market is inefficient and hence it has not contributed to economic growth in Romanian.

THE IMPACT OF STOCK MARKET PERFORMANCE ON THE GROWTH OF NIGERIAN ECO

Ekundayo argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital market provides a means through which this is made possible. Ewah, et al capital market provide the opportunities for the purchase and sale of existing securities among investors thereby encouraging the populace to invest in securities fostering economic growth.

The literature involves citing difference contribution on what capital market is all about and what means to follow in having a strong, viable and reliable market.

Jhingan the capital market is a market which deals in long term loans. It supplies industries with fixed and working capital and finance medium term and long term borrowings of the central, states and local governments.

Thus the capital market comprises the complex of institutions and mechanisms through which medium term funds and long term funds are pooled and made available to individual business and governments.

The capital market has been identified as an institution that contributes to the socio-economic growth and development of emerging and developed economies. The capital market is cornerstone of every financial system since it provides the funds needed for financing not only business and other economic institutions, but also the programme of government as whole.

The capital market is essentially a market for long term securities that is stock, debenture and bonds lasting for usually longer than three years. The proper functioning of the capital market was not set up until the establishment of the Central Bank in and launching of the Lagos stock exchange in even though securities were floated as far back as The needs to have an organized stock exchange came up and committee was set up by the government under the chairmanship of Prof.

Barbock to consider the feasibility of having indigenous forum for the purchase and sales of shares and stocks. The Nigeria capital market was established for the following reasons below. To overcome difficulties of selling government stock. To provide local opportunities and lending for long term purpose. To enable authorities mobilized long term capital for economic growth and development.

To enable the foreign business the chance of offering their shares to interested Nigerians to invest and participate in the ownership of these foreign business.

In view of the above the major participants in capital market are.

THE IMPACT OF STOCK MARKET PERFORMANCE ON THE ECONOMY OF NIGERIA |

Quoted Companies listed companies. Central Bank of Nigeria C. Banking and non Banking Financial Institutions. Nigerian Securities and Exchange Commission. Functions of the capital market. The promotion of rapid capital. It is machinery for mobilizing long-term financial resources for industrial development. The provision of an alternative source of fund other than taxation for government. The mobilization of savings from numerous economic units for growth and development.

The provision of liquidity for any investor or growth of investors. The broadening of the ownership base of assets and the creation of a healthy private sector. It is an avenue for effecting payment of debts.

The encouragement of a more efficient allocation of new investment through the pricing mechanism. The creation of a built in operational and allocation efficiency within the financial system to ensure that resources are optimally utilized at relatively little cost. It is a necessary liquidity mechanism for investors through a formal market for debt and equity securities. The Nigerian security and exchange commission NSEC is the apex institution for the regulation and monitoring of the Nigeria capital market.

The commission was established under the security and exchange commission decree , operating retrospectively from 1 st April Prior to the SEC, two bodies had in succession been responsible for the monitoring of capital market activities in Nigeria. The first was capital issues committee, which operated between and It could not be seen as the superintendent of the capital market because its functions were more or less advisory without the force of instruction even through its functions included the coordination of capital market activities.

The next body was the capital market issues commission CIC which came into being in March C, unlike its predecessor, had full powers to determine the price, timing and volume of security to be issued. Despite this wider power, the CIC could not be seen as the apex of capital market because it concerned itself with public companies alone and its activities did not cover the stock exchange and government securities.

The functions of the commission are extensively spelt out in Nigeria Securities and Exchange Commission Decree Decree No 29 of and the Nigerian Enterprises Promotion Decree According to section 6 subsection 9 to 10 the commission is charged with the following duties and functions.

Determining the amount of price and time when securities of companies are to be sold to the public whether through offer for sale or subscription. Registering all securities proposed to be offered for sale to or for subscription by the public. Maintaining surveillance over the securities market to ensure orderly, fair and equitable dealing in securities.

Protecting the integrity of the security market against any abuses arising from the practice of insider trading. Acting as regulatory apex organization for the Nigerian capital market including the Nigerian Stock Exchange and its branches to which it would be at liberty to delegate power. Creating the necessary atmosphere for the orderly growth and development of the capital market.

Reviewing, approving and regulating merger acquisition and all forms of business combination. Registering Stock Exchange or their branches, registers investment advisers, securities dealers and their agents and controlling and supervising their activities with a view to maintaining proper standards of conduct and professionalism in the securities business.

Undertaking such other activities as are necessary or expedient for giving fall effect to the provision of this decree. As one of the constituencies of the capital market, the exchange is a private, nonprofit making organization, limited by guarantee. It was incorporated via the inspiration and support of businessmen and the federal government. But owned by about members. The membership includes financial institution, stockbrokers and individual Nigerians of high integrity, who have contributed to the development of the stock market and Nigerian economy.

The Nigerian stock exchange started with the incorporation of the then Lagos stock exchange in Trading commenced on the exchange in after the enactment of the Lagos stock exchange Act of , the self regulatory organization was subsequently reorganized and renamed the Nigerian stock exchange , based on the report and recommendation of Pius Okigbo financial system review commission.

The stock exchange is thus an institution of capital market, which provides trading floors where all dealing members operates on every business day. The exchange now has nine 9 branches and all the branches function principally as trading floor. Functions of Nigerian Stock Exchange. To provide opportunities for raising new capital. To promote increasing participation by the public in the private sector of the economy.

To provide appropriate machinery to facilitate further offerings of stocks and shares to the public. To provide a central meeting place for members to buy and sell existing stocks and shares and for granting quotation to new ones.

To reduce the risk of liquidity by facilitating the purchasing and sale of securities. Economic growth means an increase in the capacity of an economy to produce goods and services, compared from one period of time to another. Economic growth is a process by which a nation wealth increases over time. Economic growth can also be refers to as the increase of per capita gross domestic product GDP or other measures of aggregate income, typically reported as the annual rate of change in the real GDP.

Economic growth is primarily driven by improvement in productivity, which involves producing more goods and services with the same inputs of labour, capital, energy and materials. The Nigeria capital market provides the necessary lubricant that keep turning the wheel of the economy. It not only provides the funds required for investment but also efficiently allocates these funds to projects of best returns to funds owners.

The market is very vital to the growth and development of any country because it support government and corporate initiative finances the exploitation of new ideas and facilitates the management of financial risk. The capital market has impacted on economic growth and development of Nigeria through the following.

The capital market encouraged the inflow of foreign capital when foreign companies or investors invest in domestic securities.

The capital market aid the government in privatization programme by offering her shares in the public enterprises to members of the public through the stock exchange. The market provides means of allocating the nation real and financial resources between various sectors, industries and companies. Through the capital formation and allocation mechanism the market efficiently distributes the scarce resources for the optimal benefit to the economy. The link between capital market and economic growth has been empirically investigated by researchers in both Nigeria and other countries.

Demetriades, et al utilized time series data from five developed countries, to examine the relationship between stock market and economic growth, controlling for other effect of the banking system and stock market volatility. Their result supports the view that, although banks and stock market may promote economic growth, the effect of bank is more. They suggested that the contribution of stock market to economic growth may have been exaggerated by studies that uses cross country regressions.

Foreign direct investment is also found to have a strong positive influence on aggregate growth. The result of their study indicates that both turnover ratio and market capitalization are important variables as determinants of economic growth. Nieuwerburgh, et al investigated the long term relationship between capital stock market development and economic growth in Belgium.

Their result shows that the market causes economic growth in Belgium. Mishra, et al examined the impact of capital market efficiency on economic growth of India using the time series data on market capitalization, total market turnover and stock price index over the period spanning from the first quarter of to the first quarter of Their study reveals that there is a linkage between capital market efficiency and economic growth in India.

This linkage is established through high rate of market capitalization and total market turnover. The large size of capital market as measured by greater market capitalization is positively correlated with the ability to mobilize capital and diversify risk on an economy wide basis.

The increasing trend of market capitalization in India would certainly bring capital market efficiency and thereby contribute to the economic growth of the country. Osinubi and Amaghionyeodiwe examined the relationship between the Nigerian stock market and economic growth during the period Unfortunately, their results did not support the claim that stock market development promotes economic growth.

The study discovered a one-way causality between GDP growth and market capitalization and a two-way causality between GDP growth and market turnover. They also observed a positive and significant relationship between GDP growth turnover ratios. The study advised that government should encourage the development of the capital market since it has a positive relationship with economic growth. Obamiro investigated the role of the Nigerian stock market in the light of economic growth.

The author reported a significant positive effect of stock market on economic growth. He suggested that government should create more enabling environment so as to increase the efficiency of the stock market, and to attain higher economic growth.

Ewah, et al appraised the impact of the Nigeria capital market efficiency on the economic growth of the nation using time series data from to They found that the capital market in Nigeria has potential of growth inducing but it has not contribute meaningfully to the economic growth of Nigeria because of low market capitalization, illiquidity, misappropriation of funds among others. Ezeoha, et al investigated the nature of the relationship that exists between stock market development and the level of investment domestic private investment and foreign private investment flows in Nigeria.

However, the results show that stock development has not been able to encourage the flow of foreign private investment in Nigeria. Afees and Kazeem critically and empirically examined the causal linkage between stock market and economic growth in Nigeria between and The indicator of the stock market development used are market capitalization ratio, total value traded ratio and turnover ratio while the growth rate of gross domestic product is used as proxy for economic growth, using the Granger causality GC test, the empirical evidence obtained from the estimation process suggests a bidirectional causality between turnover ratio and economic growth, a uni-directional relationship from market capitalization to economic growth and no causal linkage between total value traded.

The result of the causality test is sensitive to the choice of variable used as proxy for stock capital market. Overall the result of the G. C test suggested that capital market drive economic growth. This chapter included sources of data, method of data analysis and model specification. The data for this study was obtained mainly from secondary sources particularly from Central Bank of Nigeria CBN statistical Bulletins, Nigerian Stock Exchange NSE fact books, Security and Exchange Commission SEC market Bulletins and relevant journals.

The procedure for analyzing the data was econometric procedure. Here the technique used was the multiple regression analysis to test whether the capital market indices have impacted on the economic growth of Nigeria proxy by Gross Domestic Product GDP. Model which specifies that economic growth [proxy by Gross Domestic Product GDP ] is significantly influenced by the capital market indices market capitalization, new issues, value of transaction and total listing is formulated as follows,.

Note, All variables are in their natural logarithm form. This chapter tends to present and analyzed data with aim of scaring the role of capital market in economic growth of Nigeria and it further interpret and discuss the result. Total new issues N M. Value of transactions Government and industrial securities N M. Total listing on the Nigerian Stock Exchange Equity, industrial loan and govt.

Central Bank of Nigeria CBN , NSE Statistical Bulletin Various issues. Summary of the regression result. The model was transformed to the natural logarithm. On the basis of apriori expectation the coefficient of two of the variables that is log value of transactions LnVLS and log total listed security LnTLS are positively signed while the coefficient of log market capitalization LnMCAP is negatively signed.

The constant is not statistically significant at any level of significance. The implication is that the economy responds favourably to measures taken to increase total listing of equities and government stocks, market capitalization and value of transaction in Nigeria Stock Exchange.

R 2 coefficient of determination shows that The t- value of LnMCAP The negative signed of the LnMCAP may not be unconnected with the yet shallow mature of the Nigeria capital market even though the, VLS, and TLS tends to have improved remarkably since the banking consolidation in The finding agrees with Ariyo and Adelegan and Ewah, etal who found or asserted that capital market had a positive impact on economic growth and development of Nigeria.

But has not contributed meaningfully to economic growth and development due to low market capitalization MCAP , low volume of transaction, few listed companies illiquidity etc.

The study examined the impact of capital market on economic growth of Nigeria between to The findings of the study reveal the following. The relationship is statistically significance.

This is in essence means that the impact of the capital market on economic growth is strong and significant. The implication of this is that the economy responds favourable to measures taken to increase TLS in Nigeria Stock Exchange. These findings agree with Ewah, et al who found that capital market in Nigeria has potentials for growth inducing but has not contributed meaningfully to the economic growth of Nigeria due to low market capitalization etc.

The study reveals that the capital market impact on economic growth via market capitalization, value of transaction and total listing of equity and government stock.

As it was observed market capitalization, government stock and value of transaction are important capital market variables that are capable of influencing economic growth. Hence the capital market remain one of the mainstream in every economy that has the power to influence or impact economic growth therefore the organized private sector is to invest in it.

The market capitalization have not impact significantly on the GDP while volume of transaction and total listed equities and Government stock have significant impact on the GDP. In order for the Nigeria capital market to be pivotal force in Nigeria economic growth and development, the following suggestion or recommendation are put forward.

It must also address the reported case of abuse and sharp practices by some companies in the market. Therefore, these should be increase in the total member listed companies to ensure stable macroeconomic environment in order to encourage foreign multinational companies MNCs or their subsidiaries to be listed on the Nigerian stock exchange, relax the listing requirements to the first tier market and ensure tax rationalization in the capital market to encourage quotation and public interest in shareholdings.

This will served as a leeway to freeing the resources that may be used in other sphere of the economy. Journal of Economics and Allied Fields , 2 2 ,. The Stock Market and Economic Growth in. An Empirical Investigation, Journal of Economic Theory, 4,. Understanding the Nigeria Capital Market: The Nigerian Stock Exchange in Operation. Monetary Economic Theory, Policy and Institutions.

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Science 24 2 , Growth and the Role of Stock Market. Journal of Economic and Financial Studies , 2 2. Journal of African Business, 4 3 , Posted by Olalekan at Share to Twitter Share to Facebook Share to Pinterest. Sofiya Lim 15 June at NCCPL 7 March at Dorothy 27 September at Deba Sheesh 4 December at Wills Som 25 January at Newer Post Older Post Home. IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH OF NI What Women Need To Do In a Relationship.

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