THE CAPITAL MARKET AND THE CHALLENGES OF REAL SECTOR FINANCING IN NIGERIA (A STUDY OF THE PERIOD 2000-2009)

ABSTRACT
This research work evaluates the effectiveness of the capital market in the mobilization and allocation of funds to productive sectors of the economy. Reviewed the role of the capital market, economic stability, sustainable growth and development of the Nigerian economy. The researcher identified; the objectives, the scope and limitations of the research work. Hypothesis statements to test the validity of the phenomena under investigation were stated and analyzed. A review of various literatures relating to the Capital Market was also undertaken. Data relating to capital market were presented and analyzed using various statistical analysis methods such as simple percentage, bar chart, correlation and regression analysis. Based on the outcome of the analysis, it is concluded that the capital market has contributed effectively in the mobilization and allocation of funds to the productive sector of the Nigerian economy. The researcher recommends thus; that there exist an opportunity to attract new firms into the Capital Market, this will further burst the liquidity and capitalization level of the market. The recommendation also listed measures to be put in place to achieve a vibrant capital market.

CHAPTER ONE
1.0       INTRODUCTION
The capital market is central to the economic stability, sustainable growth and development of any economy. Sustainable growth and development in an economy has a direct bearing to the viability of the productive sector. To achieve this, it is essential that the capital market through the use of financial instruments mobilizes and allocates funds to meet the funding needs of the productive sector.

The capital market trading institution in Nigeria is the Nigerian Stock Exchange (NSE). Thus the NSE should develop a variety of financial instruments capable of providing diverse investments outlets and opportunities for both the investors and borrowers in the market.

In the recent past, the Nigerian economy has been saddled with the challenges of a declining productive sector following the inability of the sector to get adequate funds to meet its needs from both the money and capital market. On the part of the capital market, the challenge has been lack of a variety of investment tools, low savings capacity of investors for the market as well as the market capitalization which is stewed above 50% in favour of services sector of the economy that is, banks, insurance companies etc.

Following the above assertion, this study aims at investigating the impact of the capital market on the productive sector of the economy: A study of the Nigerian Stock Exchange and Selected Quoted Stocks from 2000 to 2009. The instruments of study will consist of Equities, Debentures, Preference Shares, and development stocks.

1.1       OBJECTIVES OF THE STUDY
The purpose of this study is to evaluate the effectiveness of the capital market in the mobilization and allocation of funds to the productive sector of the economy; A study of the Nigerian Stock Exchange and Selected Quoted Stocks (2000 to 2009).

The process involves a comprehensive study of the capital market in Nigeria from 2000 to 2009. This includes the investigation of the laws, regulatory mechanism and instruments of the market and their impact on development of the productive sectors of the economy. The specific objectives are as follows:

1. To find out the extent the capital market has contributed to the development of the productive sector of the Nigerian economy.

2. To find out the various financial instruments employed by the capital market for selected companies in the productive sectors of the economy and how these instruments have contributed to their growth and that of the economy.

3. To examine the dept of equity financial instruments in the market and their contribution to economic development.

4. To find out if their exist deficiencies in the legal regulatory framework of the Nigerian capital market.
To find out the depth of equity financial instruments, especially in the productive sector firms quoted on the Nigerian Stock Exchange, and their contribution to economic development.

5. To find if any relationship exists between the prices of equity as well as the value and market capitalization of the Stock Exchange in relation to GDP. (i.e. the GDP is the index of productivity in the economy).

6. To analyst the growth of each tool (that is, Equity and Fixed interest debt instrument) in the Nigerian Stock Exchange in relation to growth of the companies and the economy.

1.2       STATEMENT OF THE PROBLEM
The Nigerian capital market which before now was described as one of the fastest growing stock market in Africa witnessed serious crises and loss of value following price crashes especially in the banking sector equities that constituted more than 50% of the market capitalization.

As a result of this, the market capitalization which in 2008 was about N12.5 trillion fail and is presently at N5.5 Billion (source: Stock Exchange weekly activities summary 19/2/2010). 

The confidence of investing public dropped, especially, as it relates to investing in equities financial instruments.

Thus, there exists the need to create a variety of financial instruments that can assist the market provide:

i. Investment windows for the market participants such as;

a. Equities investment tools

b. Fixed debt investment tool (corporate bodies)

c. FG Development Stock

d. State Government Development Stock

e. Local Government/Municipal Stock

f. Mortgage Based Financial Tools

g. Derivative Financial Tools

ii. The availability of these financial instruments will help deepen the market and attract additional investment funds from both local and foreign private investors.

iii. Create the required choice for firms who want to raise money from the market.

iv. Create a viable productive sector of the economy.

This research therefore is concerned with the slow growth in the productive sector of the economy and how the capital market can be used to facilitate growth, especially, in the productive sectors of Brewing, Food and Beverages as well as construction sectors.

The problem of the research is to find how best to analyze, examine and proffer solution to the factors that affect the capital market especially the market instability, low productive sector activities as well as declining market capitalization. These factors of market instability, low productive sector activities and declining market capitalization impact sometimes positively or negatively on economic development of Nigeria.

Also, to investigate the impact of inadequate operational tool in the Nigerian Capital Market, inadequate savings for investment, lack of market transparency, political and economic instability as well as infrastructure deficiency is to be undertaken.

1.3       STATEMENT OF HYPOTHESIS
A statement of hypothesis is a tentative statement about phenomena whose validity is usually unknown. It is best described as a statement of probability; such a statement so far is not supported by relevant information or data.

Statement of hypothesis is often stated to highlight the perceived relationship between a dependent and our independent variable.

There are various types of hypothesis for the suppose of this research, we will consider the Null Hypothesis and the Alternative Hypothesis

Null Hypothesis, this is the reverse of the research hypothesis. It is normally stated in the negative form.

Alternative Hypothesis, this is the working hypothesis. It is usually derived from researcher’s theory about some observed phenomena on the subject under research. 

HYPOTHESIS 
NULL HYPOTHESIS (HO): Capital Market operation does not enhance the productive sector development in Nigeria ALTERNATE HYPOTHESIS (HI): Capital Market operation enhance the productive sector development in Nigeria

Hypothesis 2
Ho:      (Null Hypothesis): The growth in the value and volume of equity financial instrument for productive firms quoted on the Stock Exchange does not contribute to economic development.

Hi:       (Alternative Hypothesis): The growth in the value and volume of equity financial instrument for productive firms quoted on the Stock Exchange contributes to economic development.

Hypothesis 3
Ho:      (Null Hypothesis): The growth in the value and traded volume of securities quoted on the Nigerian Stock Exchange does not contribute to economic development.

Hi:       (Alternative Hypothesis): The growth in the value and traded volume of securities quoted on the Nigerian Stock Exchange contributes to economic development

1.4       SCOPE AND LIMITATION OF THE STUDY
This study is focused on the analysis of the Nigerian capital market and real sector development in Nigeria using selected financial instruments by some quoted companies in the Nigerian Stock Exchange. However, owing to the limitation of time, resources especially finance, data from the institutions, the analysis will be limited to the Nigerian Stock Exchange and three selected companies quoted in the productive sector of the Stock Exchange such as brewing, construction and food and beverage.

The period to be evaluated by this study is a period of ten years 2000 to 2008.

1.5       SIGNIFICANCE OF THE STUDY
The capital market is a major source of long term savings mobilization in any economy. For any economy to grow, the real sector of the economy must be actively engaged in production of goods and services. Given this view, therefore, a functional real sector in any economy is a sine-que-non to economic growth and development. Therefore, a study of this nature is very essential to all stakeholders in the Nigerian economy such as Manufacturers Association of Nigeria, Industrialist, Bankers, Stockbrokers, Financial Sector Regulators, the Political Managers, Investors, consumers and the entire Nigerian Society.

Also, the findings from this study will extend the frontier of existing knowledge, literature and serve as a stepping stone for further research. It will provide input for investment, policy making and decision.

1.6       RESEARCH METHODOLOGY 
In conducting a research work, the student is involving in designing the research. This involves the employment of survey and descriptive designs.

The researcher also determines the sample population and sample size of the study. The population being the Nigerian capital market and selected instruments traded on the Stock Exchange for firms in the productive sectors of the economy.

The process of sourcing, selecting and obtaining valid and reliable data as well as method to be employed in the analysis of the data is thus carried out by the researcher.

Given the nature of this topic, the researcher will rely mainly on secondary data.

The sources of the data will include:
i. The Nigerian Stock Exchange Daily Trading List

ii. The Nigerian Stock Exchange Quarterly and Annual Report/Review
Security and Exchange Commission (SEC) Quarterly Reports

iii. Security and Exchange Commission Annual Report and Account

iv. Financial Statement of quoted companies in the manufacturing and Stock Exchange
Central Bank of Nigeria (CBN) Statistical Bulletins

v. Annual reposts, published journals, previous research work as well as magazines

The following statistical tools will be applied in the test to be carried out in this research work:

a. Simple Regression Analysis

b. Correction Coefficients

c. Coefficient of determination

d. Student’s t-test

e. Bare chart

f. Simple percentage analysis

At the end of the analysis, the degree of the association of the dependent variable with each of the independent variables will determine their position in the valuation process.

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Item Type: Postgraduate Material  |  Attribute: 114 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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