ABSTRACT
The stock market is a common
feature of a modern market economy and it is reputed to perform necessary
functions, which promote the growth and development of an economy. This study
examined whether the capital market reforms so far carried out in Nigeria have
impacted significantly on the performance of the Nigerian Capital Market. To
achieve this objective, ordinary least square regression (OLS) was employed
using the data of capital market activities from 1988 to 2007. The result
indicated that there is a significant difference in the performance of the
capital market before and after the reform. This was achieved using the
performance indicators which included the market capitalization, volume of
stocks traded, value of stocks and the share index. The result showed that the
indicators used increased faster in the post reform period than the pre reform
period. The result of the study which established positive impact suggest that;
government and stakeholders should strengthen the regulation and transparency
in all the deals in the market as this will boast and attract more private
participation in the market with its overall growth of both the market and the
economy. And also, the NSE should find means of cutting down cost of raising
fund on the exchange so as to allow more companies the opportunity of accessing
fund from the exchange.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
Mobilization of resources for national development has
long been the central focus of economic development. For sustainable growth and
development, funds must be effectively mobilized and optimally allocated to
enable business and the national economies to harness their resources both
human and material for optimal output (Tokunbo, 2002).
The capital market is an
economic institution which promotes efficiency in resource allocation and
capital formation. It enables both corporate organizations and governments to
raise long term funds for financing new projects, as well as for project
expansion and modernization (Onosode, 1990).
According to Alabede (2004)
the role played by the stock market in the economic growth and development of a
nation is recognized the world over.
Through that role long term funds are not only mobilized but channeled for
productive investments.
The stock market provides the
fulcrum for capital market activities and it is often cited as a barometer of
business direction. According to Obadan (1998), an active stock market may be
relied upon to indicate changes in general economic activities as mirrored by
the stock market index.
The indispensable nature of the capital market in any
economy arises from the two major functions it performs: - mobilizing and
channeling of long term investible funds from the surplus sector to the deficit
sector of the economy, Usman, (1998).
As a result of this role,
governments place due emphasis on the regulation and control of the capital
market in general and the stock market in particular. In recent times, there
has been growing concern over the role of the stock market in economic growth;
hence the market has been the focus of economists and policy makers.
According
to Anyanwu (1993), the financial market is a complex mechanism made up of
procedures, instruments and institutions through which deficit economic units
and the surplus economic unit are brought together to transact business with
one another. In his own contribution; Ibenta (2000), defined the financial
market as a network of institutional arrangements through which financial
resources accumulated by savers of funds are transferred to ultimate users who
may be individuals or households, corporate bodies or governments for
investment in economic activities, which include both the production and
distribution of goods and services.
Ever since government policy
began shifting in the direction of limiting the role of the public sector in
business activity, the need for reform of the capital market became a critical
requirement for creating a viable private sector. The need for promoting balanced
financial intermediation in a system significantly short of long term funds has
been a strong signal that the domestic capital market in Nigeria was overripe
for a major change (Uzor, 2007).
The
financial market has two major segments namely the money and capital markets.
Ekoko (2007) describes the financial market as a “market where institutions
exchange financial assets and liabilities through a process described as
intermediation”.
The securities market
comprises of two segments – the primary market and the secondary market. The
primary market deals with new issues such as initial public offers (IPO), right
issues, private placement and offers for sale. The secondary market on the
other hand enables trading in existing securities i.e. securities previously
issued in the primary market.
Prior to 1998, activities in
these two markets were manually executed. Manual allotment of shares was
carried out by issuing houses in the primary market subject to clearance by SEC
while in the secondary market; trades were characterized by auction/open outcry
by stockbrokers on the floor of the Nigerian Stock Exchange.
From 1998, the Federal Government embarked on reforms in
various sectors of the Nigerian economy including the Nigerian capital market.
The commencement of Automated
Stock Market trading in 1999 marked a watershed in the development of the
Nigerian capital market. In that year, the Nigerian Stock Exchange established
a subsidiary company called the Central Security Clearing System (CSCS) to
handle the clearing and settlement of transactions in the stock market. And
subsequently in the same year the exchange commenced electronic transaction in
securities.
The Automated Trading System (ATS) alongside the CSCS
trading engine has now reduced transaction period to T+3 (i.e. transaction day
plus three days) from an average period of three months before the introduction
of these measures. This implies debiting a buyer’s account within three days
after the transaction, while the seller is enabled to collect his/her cheque
within the same period (T+3).
The primary market has also come of age with the
introduction of electronic transaction processes in an effort to improve
service delivery to investors. Already, e-Dividend and e-Bonus payment systems
are being implemented in the market.
In an effort to address the
problems associated with manual allotment such as delays in issuance of
certificates, e-Allotment is now being introduced by the Security and Exchange
Commission.
As earlier stated these
reforms were aimed at redressing delays associated with concluding security
market transactions and aligning the market with contemporary global best
practices where very significant information technology transformations in
security transactions have already taken place. The effects/impacts of these
reforms individually and collectively need to be investigated, hence the need for
this research.
1.2 STATEMENT
OF PROBLEM
The performance of the
Nigerian Capital Market is currently (Sept. 2009) at a low ebb, due to the
global economic meltdown. Despite committed efforts to power the Nigerian
economy through various reforms – Nigerian Capital Market- to achieve
accelerated grass roots economic development, the Market seems to be faced with
various constraints which hinder its
performance, rate of national economic growth and development.
The Nigerian Stock Exchange would have done better but for
problems of high cost of raising funds, low awareness about the significance of
investing in the stock market by Nigerians, stringent conditions for listing
companies, fraud among stockbrokers, long period of clearing/ verification of
certificates, over trading, insecurity of invested fund, etc.
To address these problems,
regulators of the Nigerian economy have embarked on a series of reforms in a
bid to solving the problems encountered in the Nigerian Capital Market. The
impact of these reforms - electronic reforms- on the performance of the
Nigerian Capital Market will be X- rayed.
1.3 OBJECTIVE OF THE STUDY
The broad objective of this study is to determine the
impact of capital market reforms on the performance of the Nigerian Stock
Exchange.
1.
To compare the pre and post reform
performance of the stock market using the market capitalization.
2.
To compare the pre and post reform
performance of the stock market using the trading volume.
3.
To compare the pre and post reform
performance of the stock market using the value of stocks.
4.
To compare the pre and post reform
performance of the stock market using the share market index
Based on the findings, to make policy recommendations on
how to improve the overall performance of the Nigerian Stock Exchange.
1.4 SIGNIFICANCE
OF THE STUDY
It it’s hoped that this study will be of immense
importance in many ways;
The Nigerian policy makers will benefit from the result of
the study, as it will form part of the decision making process. Hence it will
aid the government in developing new policies.
The operators
will use the results of the study to identify their shortcomings and what is
expected of them from the public and government. The study will serve as a
parameter for operators as to know the need for the potentials of reforms to be
exploited, so that more revenue can be generated for the socio-economic growth
and development.
Finally, the study will serve as a yardstick/guide for
further research on the same topic and other related topics.
1.5 RESEARCH
QUESTIONS
The research will be tailored
to provide answers to the following questions.
1.
Of what effect is the reform on
the market capitalization of the Nigerian Capital Market?
2.
Of what effect is the reform on
the trading volume of stocks in the Nigerian Capital Market?
3.
Of what effect is the reform on
the value of stocks in the Nigerian Capital Market?
1.6 RESEARCH HYPOTHESIS
The
following hypotheses are formulated in null form for this study;
1.
There is no significant difference
between the stock exchange market capitalization before and after the reforms.
2.
There is no significant difference
in the trading volume of stocks in the exchange before and after the reforms.
3.
There is no significant difference
in the value of stocks in the stock exchange market before and after the
reforms.
4.
There is no significant difference
in stock market index before and after the reforms.
1.7 SCOPE OF THE STUDY AND METHODOLOGY
The
research will be conducted using data generated from the Nigerian Stock
Exchange.
The available data on the
study are secondary data from Stock Exchange journals, CBN bulletins and the
bullion. Some other sources include newspapers, magazines and other journals
both locally and internationally.
Internet facilities will also be explored to extract
relevant data required for the research.
1.8 DISPOSITION
OF THE THESIS
This thesis is divided into five chapters. In the first
chapter the background of the study is presented followed by a problem area
discussion, research objectives, significance, research questions, the
hypothesis, scope of the study and finally the disposition of the thesis.
In chapter two, theories and previous studies related to
the topic will be reviewed. The methodology used in this thesis will be
presented in chapter three. Chapter four contains an analysis of the data used
in this study.
Finally, chapter five will present the conclusions of the
study and recommendations for implementations.
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Item Type: Project Material | Size: 103 pages | Chapters: 1-5
Format: MS Word | Delivery: Within 30Mins.
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