THE ROLE OF STOCK EXCHANGE IN THE DEVELOPMENT OF CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE)
A case study of Nigeria, the contribution of stock exchange in the banking sector and in economic well being of the general public.
In a nutshell, the stock exchange aims to provide an atmosphere where buyer and sellers of securities meet to buy and sells shares (securities)
The importance of stock exchange cannot be over emphasized in the banking sector and even it performs prominent roles in Nigeria economy at large. In developing our economy in Nigeria in Banking sector, with stock exchange had came into being so as to perform this active part in banking and Nigeria as well, in view of the above, the stock exchange market aimed at motivating and encourage the Investor, Brokers as well as the general public to have improvement in their aims of buying and selling securities, through proper usage of the instrument used in the stock exchange market.
TABLE OF CONTENTS
Table of content
1.0 Introduction 1-2
1.1 Background of the Study 2-5
1.2 Objective of the Study 5-6
1.3 Scope of the Study 6-7
1.4 Statement of the Problem 7-8
1.5 Research Hypothesis 8-9
1.6 Limitation of the Study 9
1.7 Delimitation of the Study 9
1.8 Significant of the Study 10
1.9 Definition of Terms 10-14
2.1 The Capital Market 15-16
2.2 Reasons for Establishment of the Nigeria Capital Market 16-17
2.3 Function of the Nigeria capital market 17-18
2.4 Composition of capital market 18-27
2.5 Nigeria stock exchange 27-28
2.6 Development of stock exchange in Nigeria 28-27
2.7 Function of the Nigeria stock exchange 27-34
2.8 Instrument Used in Stock Exchange 34-36
3.1 Introduction 37
3.2 Research Design 37-39
3.3 Method of Data Collection 39-34
3.4 Sampling Population 40-42
3.5 Research instrument 42-43
3.6 Questionnaire Design 43
4.1 Introduction 44
4.2 Data Analysis and Presentation 44-45
4.3 Interpretation of Data and Analysis 45-58
4.4 General Comments 58-
5.0 Summary Conclusion and Recommendation
The capital market is a market which deals in long – term loans. It supplies industry with fixed and working capital and finances medium- term and long term borrowing of the federal, state and local governments.
The capital market deals in ordinary stocks and shares and debentures of corporations and bond and securities of government and it should be noted that the fund which flow into the capital market come from individuals who have savings to invest.
In another sense the stock exchange plays an important role in the economy, it determine the economics health of the country and has a pivotal role in mobilizing resources for the development of capital market. It is patient to know that the capital market functions through stock exchange market under the stock exchange of every country.
A case study of Nigeria stock exchange, the contribution of stock exchange in the banking sector and in the economic will being of the public
In a nut shell, the tock exchange aims to provide an atmosphere when buyer and seller of securities must to buy and sell shoves (securities) the study on the role of stock exchange in the development of capital market will focus on:
(a) the role of stock exchange in Nigeria and the capital market
(b) history of Nigeria stock exchange and it past operations
(c) Effect and important of stock exchange as a unit of capital market on the industrial development.
(d) Impact on the investor and issues of the securities
(e) Nature of the capital market and exchange in the capital market operations.
(f) Participant in the capital market
(g) Problem of Nigeria stock exchange in the capital market operations
Statement of the problem
The focus of the study will be to identify the role of stock.
Stock exchange in the development of capital market, and Nigeria stock exchange will be the case- study. In the course of the study answer will provided to the following.
a. What are the role of stock exchange in Nigeria in the capital market
b. What is the historical background of stock exchange and review of their operation in the past.
c. What are the effect and importance of stock exchange as a unit of capital market on industrial development.
d. What are the participant in the capital market and exchange in the capital market operation
e. Who are participant in the capital market and exchange in the capital market operation.
f. What is the nature and who are the participant of the capital market
g. What are the limitation of problems of Nigeria stock exchange in the capital market operation
Aims and objective of the study
It is important to know that every country how their own stock exchange which contribute and determine the economy of respective country. This research work will only cover Nigeria stock exchange and it role in the development of the Nigerian capital market. By so doing, the main reason for embarking on these studies is to derived answer to the statement of the problems, which will fill the existing knowledge gap.
The aims and objective of this study include:
a. to focus on the examination of the role of stock exchange in Nigeria, and the capital market.
b. To show the history of stock exchange and review of their operation in the past.
c. To bring into time light the effect and important of stock exchange as a unit of capital market on the industrial development.
d. To show the significant impact of the investor and issue of securities
e. To know the nature of participant of the capital market and exchange in the capital market operation.
f. To know the nature and participant of the capital market.
g. To bring out limitation of problems of Nigeria stock exchange in the capital market operation.
Statement of hypothesis
The general hypothesis that will be tested in the study of the research is as follow
Ho: the role of stock exchange has not develop the capital market
Hi: the role of stock exchange has developed the capital market
Ho: the stock exchange performs no function to the country
Hi: the stock exchange perform functions to the country.
Base on the topic, the study will use primary and secondary sources of information as well as other psychological devices;
The primary sources will include:
⦁ Response from questionnaire
⦁ Materials from the case study materials,
⦁ Materials from the internet.
The secondary source will include
⦁ Text books
and the psychological devices will be to studying their behavior scenically and much emphasis will be places on the questionnaire as it will cover a wider population than when other instrument (s) are being for the same purpose
question: list of question will be drawn for respondent to answer. The study will avoid difficult and ambiguous question, the question will be simple and straight forward and rooms for the expression of views / findings of respondents (s) regarding the study will be created
a complete presentation of population from which it is drawn a sample, well be precisely be part of the population, as it is a subject of the entire population of any kind.
Definition of terms/ concepts
In the stud emphasis may be placed on some wards and may be used repeatedly which it meaning they differ from English dictionary meanings, such wards and short meaning needed to be know to started below for these proposed/ study:
1 the capital market which is the market that deal with long- term fund
2 stock market operators: these are those that are included in the operation of the stock market such as jobber, stock brokers, investment advisers, and issuing houses etc
3 prim market which is regarded as the original or the main market
4 second tier securities market which is segment of capital market where small companies operate.
5 Ordinary and reference shares: ordinary shows are common shares and generally carry no fixed rate while the preference share usually have fixed rate of dividend and their holders are paid if company makes profit
6 To mention few other could be bulls, bear, stag and others which the meaning will be in details in the study.
⦁ plans and organization of the study
the research work will be divided into five chapters. Each chapter contain the following:
chapter one will have the background of the study, objective of the study, scope of the study, statement of the problem, research hypothesis, limitation of the study , significant of the study and definition of terms
chapter two will b theoretical frame work which will forces on the laterally review of Nigeria stock exchange and capital market, reason for establishment of the Nigeria capital market, composition of capital market, Nigeria stock exchange, development of stock exchange in Nigeria, functions of the stock exchange and instrument use in stock exchange.
Chapter three will state briefly the analysis of various method used in data collected and emphasized on research design, method of data collecting sampling population, questionnaire design.
While the chapter four will contain introduction, data analysis and presentation, interpretation of data and analysis, testing of hypothesis and general comment.
And finally chapter five will discuss summary, conclusion recommendation and suggestion for further studies
The will state the list of materials text books journal magazine consulted in the writing of the proposal and those that will be use to write the main project.
1.1 background of the study
The Nigeria stock exchange provide a market where holding of existing “ quoted” shares wishing for sell; such share be sold by making contact with individual and institution which are interested in buying and selling of shares, stocks bonds and security. Also any one who has surplus fund after current living expenses and a reserve for an emergency might decide to invest such surplus fund in security.
The stock exchange is otherwise known as “ security market” the stock exchange play on important roe in the economy in mobilizing resources for development of capital market, the stock exchange provides facilities for bringing together suppliers and users of capital
A stock exchange therefore, is a market where large / small shares of companies and government securities are traded.
Former director general of the Nigeria stock exchange apostle H.I Alike describe the stock exchange as the corner stone in the nations capital formation and the achieving of the engine of the financial institution resolve for example.
Nigeria security and exchange commission (N.S.E.C) of public enterprise, savers, underwrite issuing houses, fund user, stock brokers, security registers.
The establishment of the exchange in 1960 market the informal birth of Nigeria capital market which serves as a range of purpose including the following.
i Mobilization of savings from numerous economics units of economic growth and development.
ii Provision of adequate liquidity to investor.
iii Broad of the ownership base of Assets as well as the creation of private sector.
iv Provision of alternative source of fund for government other than taxation.
v Encouragement of more efficient allocation of new investment through price mechanism
vi Encouragement of more efficient of given amount of tangible wealth through changes in the composition and ownership wealth
vii Promotion of rapid changes that exist to link together sellers and buyer of quoted investment. They help to widen there base of ownership of public companies. Stock liquidity also provides especially for making it easy for government and industries to raise fund (s) for development of their programmes.
1.2 OBJECTIVE OF THE STUDY
The main aims of the research work are as follows:
i To focus on the examination of the role of stock exchange in Nigeria in the development of capital market.
ii To show the history of stock exchange and review of their operation in the past
iii To bring into limelight the effect and importance of stock exchange as a unit of capital market on industrial development
iv To show significant impact on the investor and issues of the securities
v To know the nature and participant of the capital and exchange in the capital market operation
vi To know the nature of participant in the capital market.
vii To bring out limitation of problems of Nigeria stock exchange in the capital market operation.
1.3 Scope Of The Study
With available data on the Nigeria stock exchange system the case study will focuses its attention on the management and role of the stock exchange system.
This research work was not carried out without difficulties, many of the limitation which is considered very important are listed below:
⦁ Financial Problem: considering the global economic melt down and devastating economic problems confronted by non- political aligns in the country, the researcher is confronted with financial inadequacy due to other academic commitment which involves money, to say categorically that the cost used in caring out this research work involves thousand (s) of naira. It is not an over statement
⦁ Time Factor: Another prominent obstacle faces by the researcher is that of time factor. Talk about the time took to travel, planning organizing and collecting of materials to be used for the write-up
⦁ Transportation Problem: During the period of carrying out this research work in collection of data the researcher spent a lot of money on the cost of transport fare (s) and on some occasion the researcher will have to “trek”
1.4 STATEMENT OF THE PROBLEM
The presentation is mainly concerned with the role of stock exchange in the development of capital market in Nigeria stock exchange.
In this research work, the role of stock exchange in Nigeria stock exchange shall be thoroughly examined with particular emphasis on the following
⦁ Exchange rate problem the unstable nature of the exchange rate is a major headache to the Nigeria stock exchange prior to march 1992, exchange rates were still easy and investors could be able to invest their money
⦁ The number of companies trading on the floors is alarmingly affected by the operation of the exchange
1.5 RESEARCH HYPOTHESIS
The following hypothesis is considered as the basis of the question to be answered for the purpose of the study
Ho: The role of stock exchange has not developed the capital market
Hi: The role of stock exchange has developed the capital market.
Ho: The stock exchange marker perform no function to the country
Hi: The stock exchange market perform function to thee country
1.6 LIMITATION OF THE STUDY
It is normal for human being to be face with certain problems in the achievement of a particular objectives which should be considered challenges, therefore there are numerous difficulties confronted with in carrying out this research work which can be trained to lack of finance to various companies for adequate information gathering which might have enriched the research work.
1.7 Delimitation Of The Study
The research work covers the evolution and historical background as well as role of stock exchange in the development of capital market focuses on Nigeria stock exchange as case study
1.8 SIGNIFICANT OF THE STUDY
The importance of a well developed stock market and its role in the banks recapitalization cannot be over emphasized, hence, this study is aimed at examining and analyzing the roles or impact of Nigeria stock exchange on the assets base of banks it aimed at assisting prospective researcher into the factors that led to the mergers and acquisition of the consolidation of banks.
1.9 DEFINITION OF TERM
The capital market: This is the market which deals with long term funds. The most important role play in this market is the stock exchange, while the regulatory institution is the Nigeria securities and exchange commission it is a market place where listed securities such as bond, debentures stocks and shares of varying type are bought and sold
A stock exchange is established to act as catalyst of business expansion or growth.
Stock market operators: The stock market operator involves the following:
⦁ Stock Brokers
⦁ Investment Advisers
⦁ Issuing Houses
Jobbers: The jobbers otherwise known as market makers are independent dealers i.e. they trade on their account and bear the risk of price fluctuation. They do no receive commission the jobbers returns depend on the spread between bid and offer prices.
The function of the jobber includes maintaining a continuous and orderly market with the aim of ensuring that securities are readily available and trade and prevailing market prices.
Stock Brokers: These are member of the exchange who buy and sell securities on behalf of the investment public
They also sponsor issues to the stock exchange for listing an also underwrite and handle primary distribution of securities.
Investment Advisers: these are non- registered members of the exchange who perform functions similar to stock brokers. Not being members of the exchange, they cannot sponsor issues to the stock exchange for listing
Issuing House: These are agent who arrange the issues of securities on behalf of the governments or firms intending to raise money from the investing public. Merchant banks or stock broker do this job.
Prime market: Is regarded as the original or the main market deals in fully listed share or quoted on the stock exchange
Second tier securities market: This is a segment of capital market where small companies operates
The bull and the bear market:
Bulls is an investor who believes that the market price are certain to go up. Bull means upward trend. In the context of the stock market, it means the market is going up and doing well as reflected in share prices.
Bears (s) is an investor who believes that the market prices are certain to go down. Bear trend means that the market is going down and not doing well
Stag (s) is a male deer, In the context of shares, it refers to equities. with potentials of upward movement in price. Therefore on investor desirous of making profit form now issues of shares buys the shares before they are listed and sells them at a higher price.
Investment: simple means of giving up cash now is exchange for the promise of more cash in the future.
Shares (s): it represent evidence of investment interest of a person in a company and government establishment
Ordinary and preference share: The UK term for a share in the equity of a company. The US equivalent term is common stock. The holder of an ordinary share is entitle to share in any distribution of dividend in proportion to number of share hold. Ordinary shares usually but not invariably entitles their holders to vote at company meetings. They are contrasted with debentures and preference shares. Debenture holder normally have a fixed entitlement to interest but no vote provided the interest is paid and any other conditions are compiled with preference share holders have not vote but must be paid heir dividend before any distribution to ordinary shareholder is allows. In the event of winding up a company, ordinary shareholder is rank last in any claim to company assets, but get in unlimited part of any residual there is after paying off the others ..