ASSESSMENT OF THE PERFORMANCE OF THE CAPITAL MARKET IN A DEREGULATED ECONOMY, THE NIGERIA EXPERIENCE 1986-2006

ABSTRACT
This study is an assessment of the performance of the capital market in the deregulated Nigerian economy from 1986-2006. The research focus was directed toward a deeper understanding of how capital market performance has impacted on capital formation and economic growth in Nigeria. We concentrated on two capital performance indications namely; market capitalization and growth in the number of listed securities. Secondary data from Central Bank of Nigeria (CBN), Nigeria Stock Exchange (NSE), and Federal Office of Statistics (FOS), which were obtained through library research of relevant publications, were used. The econometric technique of multiple regression analysis was used as the main estimation tool to measure the degree of relationship between capital formation and Nigeria’s economic growth respectively and capital market performance measures. The study was guided by two hypotheses. Both linear and log linear specifications of each of the relationships were tried. Our hypotheses were tested with the R2 test and f-test. The major findings of the study were: that the log linear specifications suit our data more in terms of goodness of fit, precision of the estimates and tolerable level of multi collinearity and that capital market performance has both significant and positive impact on capital formation and economic growth in the deregulated Nigerian economy. The study concluded that to increase the level of capital formation in Nigeria and enhance economic growth of the country, efforts should be made to enhance the performance of the capital market but how fast the market moves to assume its rightful position as a major channel of capital formation needed for Nigeria’ rapid economic growth will depend on how fast the major obstacles impeding its performance are dispensed with. It recommended some measures to be implemented to enhance the performance of the Nigeria capital market. Like The regulatory and supervisory framework needs to be continuously reviewed and strengthened to embrace the activities of the market, emphasis on transparency and accountability on all aspects of economic management and corporate governance, etc.

CHAPTER ONE
INTRODUCTION
1.1   BACKGROUND OF THE STUDY
The capital market is a financial market that provides facilities for mobilizing and dealings in long-term funds for economic growth and development. Wilkinson (2007) defines capital market as "any place or system where the requirements of business enterprises and public authorities or governments for medium and long-term capital funds can be met". It is the market in which corporate equity and long term debt securities that is shares and bond (those maturing in more than one year) are issued and traded.

Ajie (2002) is of the view, "that pivotal role of the capital market in any economy could have been dispensed with, if a firm or even an individual for that matter could operate in a financial vacuum". As a matter of fact, it is because firms for example, operate in close contacts with various financial intermediaries and markets that they are afforded not only the mechanism through which their idle funds can be invested but also one that is capable of satisfying their needs for additional funds.

As observed by Okereke-Onyiuke (2000), raising funds from the Capital Market makes possible among others, the construction of factories, offices, buildings, highways, bridges and the acquisition of machineries. This opportunity which the Capital Market offers facilitates capital mobilization and allocation among several competing activities.

In theory, Capital Markets are intended to provide investors and borrowers with a wide range of trading and investment vehicles and to better mobilize and allocate a country's financial resources and support economic growth. This market brings together all the providers and users of capital. Buying stock allows investors to gain an equity interest in the company and become part owner. When investors buy bonds, they essentially loan money to the company or government that issued the bond and become creditors of that issuer. The market also provides them with new and more varied saving vehicles as alternative to bank deposit. For borrowers capital markets provide access to more funds for expansion which can help in economic growth. Levine and Zervos (1998) are of the opinion that well functioning capital market, along with well designed institution and regulatory system, foster economic growth through private initiatives.

There is empirical evidence strongly suggesting that well functioning capital market promote long-run economic growth. In particular, Levine and Zervos (1998) find that indicators of capital market performance such as market capitalization, turnover, growth in the number of listed securities, and so on are correlated with economic growth and its sources - total factor productivity growth and capital formation.

In the recent past, capital market performance has received increased attention among governments and development finance institutions, with emerging market accounting for a growing share of the worldwide boom in the capital markets. Countries at different levels of development are promoting the performance of their capital markets with the expectation that these efforts will pay off in terms of faster economic growth.

In Nigeria, the role of the capital market in economic growth of the country has continued to attract increased attention from the government and market practitioners. Al-Faki (2008), emphasizes that "the Nigerian capital market has experienced considerable growth in the last decade. In the last year alone(2007), the Nigerian Stock Exchange all-share index has almost doubled to 51,000 points, and market turnover has also increased". According to him, the factors responsible for this growth of market are firstly, public enlightenment programmes that the Commission carries out periodically to reach and enlighten the public all over the country. Other factors are the reduction of the cost of transaction which has enhanced competition in the Nigerian capital market. The Commission, in collaboration with other stakeholders, has also continued with the efforts aimed at promoting the reactivation of the bond market in Nigeria.....

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Item Type: Postgraduate Material  |  Attribute: 92 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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