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THE ROLE OF NIGERIAN CAPITAL MARKET IN THE GROWTH OF


INDUSTRIAL SECTOR

ABSTRACT

This study is concerned with evaluation of the role of the Nigeria


stock Exchange in capital formation and economic development.

The Nigeria stock exchange being responsible for the mobilization of


funds has being having divergent views over its impact by different
quarters some has been praising stock exchange for its role in fund
mobilization for capital formation, which invariably leads to
economic development, while some has being criticizing it on its
ineffectiveness.

Result of various scholars on the above topic assigned greater role to


the Nigeria stock exchange as an avenue for capital formation
especially in developing countries like

Nigeria.However, this study is a product of it observations mode and


the reflection gathered from these previous studies and it is aimed at
revealing the extent to which the Nigerian stock exchange had been
performing its funds mobilization role crucial to the development of
the economy.

CHAPTER ONE

1.0 INTRODUCTION

Fredric Benhan (1960) defined capital formation as the amount,


which a community adds to its capital during a period. The more
capital a community has, the greater will be the volume of its output,
which invariable leads to economic development. For the purpose of
these studies, capital formation will be viewed from the contribution
made to it by the Nigerian stock exchange. Also for the purpose of
the study, capital formation should take into account only the issues
in the stock exchange.

To many people the stock exchange is a gaming house where


underserved fortunes are made overnight on paper. To the city and
to most economist, on the other hand the market is of vital
importance to government and industry alike, for it is there and
there alone that new long – term capital can be railed voluntarily
from the public on a large scale and in short space of time. One
object of this study is to examine critically the part of the stock
exchange really plays in the capital market and in our economic life.

When an individual subscribe to an entirely new share, he is buying


not only the right to dividends or asset or any other benefits to
which he is entitled as a member of the company. He is also buying
the possibility of disposing of his interest on the stock exchange. He
acquire with his shares the right to execute deed, transferring his
securities for a consideration to some one who may be a stranger
both to the company and to himself, and with whom he is put in
content entirely through the market’s agency.

This is the one of the essential attributes of a quoted as distinct from


an unquoted stock, the stock exchange in its presents firm could not
exist, and without it, the stock exchange would not grant quotation.

Indeed, new issue can be made only because of the existence of a


market in old ones new securities placed by a borrower are in
competition with all existing stock and shares for the investors
favour, and that competition is one of the factors determine price.

Sometime, it is the other way round and the tail ways the dog, for
new issues of substantial sizes in having a big influence upon the
prices of old securities, of the thousands of millions worth quoted on
the stock exchange, only a relatively small fraction enters in to trade
on any one day a large addition to the volume that would normally
change hands inevitable has repercussions upon price. What matters
is not that it is sometimes the old and the new securities which
predominate, but that it is the interaction between the supply of
both new old securities and the demand for market prices, the stock
exchange provides the machinery for bringing buyers and sellers of
securities both new and old, into contact with one another.

And its economic function is to establish price at the value of new or


substituted capital and existing securities bought is equated to the
value of available funds, including the proceeds of securities sold.
Given the investors indifference as between the old and new thing
and the market for new issues as another. In any event the volume
of old securities traded in depends in part on price, which in turn is
closely associated with the price and amounts of new issues.

From the community’s point of view, the essential fact is that the
price of new and old shares being interdependent, the terms on
which borrowers can raise money are closely bunds up with the
terms on which investors can buy competing goods in the form of old
securities. Without the free exchange of stocks and shares savings
would not readily towards the industries requiring them. The only
alternative would be compulsion.

While privately controlled business exist, they must have access to


fresh money, and this cannot be had upon favorable conditions
without markets catering for old investments as much for new.

Despite the large number of companies which nowadays would be


classed as industrials, the relatively greater importance of foreign
loans, banks and financial companies railways both here and abroad,
public utilities, heavy industry, and mines and plantations.

It is clear form the nature of these securities that the market was
entered whenever the type of undertaking was such that money just
had to be raised on a big scale, or when in the nature of things there
was a pre – existing parent business to fall back on finance.

The stock market is only a place of last resort. Borrowed do not turn
to it unless money is needed in sums, which is beyond the power of
individuals to provide, and unless a renewable form the social point
of view, it is usually said that the canalization of savings into capital
for industry and government is the purpose of the stock exchange.

The potential investors who have funds, and want to add to the
holdings with out merely financial the purchase of one security with
the sale of another, source their money from three sources, which
run together into single stream.

Secondly, there are floating savings, which through accruing out of


the surplus current receipts of all the types of investors, they are not
consistently invested in one form of asset or another. The same
personor institution may vary from year to year the proposition of
saving allocated between the stock exchange and other outlets. The
allocation may be in accordance with some definite plan and may
depend on opportunity, for with the limits of tolerance allowed by
individual policy, the stock of activity within the stock exchange has
some beaming upon the proportion of the community saving
directed to it.
Finally, it is possible for funds to reach the stock exchange without
coming out of current savings at all, assets of other kinds may be sold
to by marketable securities, or an exceptional consumption may be
reduced in other to make an extra purchases of securities.

As the third source is unlikely to be large over a period, the flow of


funds to the stock exchange depends mainly on the total supply of
the community savings and on variation in the proportion of savings
used for buying marketable securities. It is common place to say that
new private investment in the stock market in drying up.

This does not mean that individual do not a major ultimate source of
the stock exchange’s new money. But more and more does their
contribution tend to be indirect, through compulsory or contractual
savings. New money coming in to the market is now provided to a
great extent by pension fund, insurance companies and other types
of institutions of investors.

They dispose of part of the contribution of millions of private


persons, and their policy towards marketable securities in renewal or
towards particular investment that have the greatest significance for
the stock exchange activity and price. Also the so-called
extvabudgetary funds are potential important, for who ever they
have a surplus; a part of it is available for investment on the stock
exchange.

11 STATEMENT OF THE PROBLEM


I To examine the role of the Nigeria stock change in capital formation
and economic development of Nigeria.

II To appraises to what extent the Nigeria stock exchange have


responded to the economic development.

III To evaluate to what extent that Nigeria stock exchange has


encourage Nigerian private sector as a medium of raising funds for
the stock of change institution.

IV To Assess whether Nigerian stock exchange can move effectively


reaches participants by the private sectors in the post structural
adjustments programmed (SAP) era.

1.2 PURPOSE OF THE STUDY

The purpose of this study is to examine the role of the Nigerian stock
exchange in capital formation and economic development of Nigeria.

1.3 SIGNIFICANCE OF THE STUDY

This study will be very significant to all participants in the capital


market viz; regulatory authorities, investors, analysts, theories risk,
stock brokers, and issuing houses,

Presently the existing theories leaves room for additionally and


changing role of the Nigeria stock exchange evidence abound in
Nigerian that capital is scarce and cost of borrowing is high,
therefore there is every heed to look inward and fund a way to
increase our aggregate investment in equity or loan stock. I believe
that the Nigerian stock exchange has the greatest potentials to
improve the capital formation ability of this country.

I hope that this study today will file an empirical viewed in a manner
suiting the purpose of other worker’s in economic and related
studies, and especially that they contribute activity to the systematic
organization of knowledge about capital formation and economic
development.

1.4 RESEARCH HYPOTHESIS

From the purpose of this study, two testable hypothesis have


developed with Ho representing the Null hypothesis and Hx
representing the alternative hypothesis, which is accepted when Ho
is rejected. This will help in proving the objective and solving the
problem of this study. The Null hypothesis was formulated to negate
certain factual statement and attempts have been made to prove
them wrong where Ho actually proves wrong, the alternative
hypothesis Hi was accepted.

1. Ho: there is no significance difference between the accounting


system adopted in the Nigerian stock exchange and other
organization.

Hi: there is difference between the accounting system adopted in


Nigerian stock exchange and other organization.
2. Ho: the procedure of accounting treatment of transaction in
Nigerian stock exchange is not the same with other organization.

Hi: the procedure of accounting treatment of transact in Nigerian


stock exchange is the same with other organization.

3. Ho: Nigerian stock exchange do not maintained central store


in their industry.

Hi: Nigerian stock exchange maintained central store in their


industry.

1.5 SCOPE OF THE STUDY

The results presented in this study are subject to a variety of


limitations.

First, the study concentrates almost exclusively on capital formation,


though have been largely ham pared in a way and equally have
success in some quarters.

Secondly, the computations of some of the secondary data used in


the analysis of the study were just started by the various sources of
data collection thereby reducing the Spam or scope of the analysis.

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