ABSTRACT
Many efforts have been made towards understanding the relationship between
capital market and the economic development of Nigeria. The capital market of
every economy is setup for the attainment of specific objective which includes
economic growth and stability; Data were collected and analyzed using ordinary
least square analysis. These include F-test, to determine the significance of the
entire regression plan, T- test to test for the significance of the individual variables
and the second order test, which include test for autocorrelation, normality test and
heteroscedasticity. The result of the study shows that the capital market has a
positive and significant impact on the country‟s economic development. On the
strength of this evidence, this work recommends that government should introduce
policies to motivate and encourage the market. If these recommendations are
efficiently implemented, the effectiveness of the Nigerian capital market will be
enhanced.
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TABLE OF CONTENTS
Title page- – – – – – – – – – – -i
Approval page- – – – – – – – – – -ii
Dedication- – – – – – – – – – – -iii
Acknowledgement- – – – – – – – – -iv
Abstract- – – – – – – – – – – -v
Table of contents- – – – – – – – – – -vi
CHAPTER ONE
1.1 Background of the study– – – – – – -1
1.2 Statement of the problem- – – – – – – -3
1.3 Research questions- – – – – – – – -5
1.4 Objectives of the study- – – – – – – – -5
1.5 Research hypothesis- – – – – – – – -6
1.6 Significance of the study- – – – – – – -6
1.7 Scope and limitation of the study- – – – – – -7
CHAPTER TWO
Literature Review
2.1 Theoretical literature– – – – – – – -8
2.1.1 The Nigerian Capital Market- – – – – – – -9
2.1.2 Functions of the Nigerian Capital Market- – – – – -10
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2.1.3 Origin of the Nigerian stock exchange and Capital market- – -12
2.1.4 The Nigerian stock exchange (NSE)- – – – – – -13
2.1.5 The stock exchange and capital market- – – – – -15
2.1.6 Impact of the Capital market on the Nigerian Economy- – – -17
2.1.7 Problems of the Nigerian Capital market – – – – – -19
2.2 Empirical Literature- – – – – – – – -24
2.2.1 Limitation of previous study- – – – – – – -27
CHAPTER THREE
3.1 Model Specification- – – – – – – – – -29
3.2 Estimation of procedure- – – – – – – – -31
3.3 Method of evaluation- – – – – – – – -31
3.3.1 Evaluation based on economic “a priori” test– – – – -31
3.3.2Evaluation based on statistical criteria- – – – – – -32
3.3.3 Evaluation based on Econometric criteria- – – – – -32
3.4 Data requirement and sources- – – – – – – -33
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
4.1 Presentation and interpretation of result- – – – – -36
4.2 Economic “Apriori” criteria- – – – – – – -37
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4.3 Statistical criteria (first order test)- – – – – – -39
4.3.1Coefficient of multiple determinant (R2
)- – – – – -39
4.3.2 The student t- test- – – – – – – – – -39
4.3.3 F statistics- – – – – – – – – – -41
4.4 Econometrics criteria- – – – – – – – -42
4.4.1 Test for Autocorrelation- – – – – – – -42
4.4.2 Normality Test for Residual- – – – – – – -43
4.4.3 Test for Heteroscardasity- – – – – – – -44
4.5 Presentation and interpretation of result- – – — – -46
4.6 Economic “Apriori” criteria- – – – – – – -47
4.7 Statistical criteria (first order test)- – – – – – -48
4.7.1 Coefficient of multiple determinant (R2
)- – – – – -48
4.7.2 The student t-test F statistics- – – – – – – -48
4.8 Econometrics criteria- – – – – – – – -50
4.8.1 Test for Autocorrelation- – – – – – – -50
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4.8.2 Normality Test for Residual- – – – – – – -52
4.8.3 Test for Heteroscardasity- – – – – – – -52
CHAPTER FIVE
Summary, Recommendation and Conclusion
5.1 Summary- – – – – – – – – – -54
5.2 Recommendation- – – – – – – – – -54
5.3 Conclusion – – – – – – – – – – -55
References — – – – – – – – – – -57
Appendix- – – – – – – – – – – -58
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CHAPTER ONE
INTRODUCTION
1.1 BACKGROUD OF THE STUDY
Every economy seeks to appropriate industrial base to move the economy from a
traditional and low level of production to a more automated and efficient system of
mass processing and the manufacturing of goods and services. For this level of
development to be attained, there must be a sound financial system which would
serve as the back bone of such an economy. If this is pursued, acquiring industrial
capabilities would be easily attained since it is considered as the economic
development. As a result of the importance of the financial system in developing
industrial capabilities every economy seeks avenues to acquire them one of such
avenues is raising funds through the capital market.
The capital market deals with instrument or long term securities with maturity
period longer than one year such as bonds, debentures and equity stocks. The
capital market in Nigeria has been a major source of finance to the government;
industries etc. to meet their longer term capital requirements such as financing for
fixed investments on buildings, plants bridges etc. The use of capital market
reduces over reliance on the money market, assist in promoting a solvent and
competitive financial sector as well as fostering a healthy stock market culture. The
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importance of the capital market cannot be under estimated.it is the fundamental
instrument of capital formation in any countries economy since no instrument takes
place in a vacuum. A well-developed capital market ensures the availability of
capital funds for investment and developing project usually takes a long gestation
period which the funds from the money market cannot sustain. This implies that
the absence of an efficient capital market in an economy would result in shortage
of long term funds and would harm investment and hence militates against
economic development.
An active capital market aids the mobilization of savings for economic growth and
development. encourages the efficient allocation of resources through changes in
wealth ownership and composition, catalyzes the creation of a healthy private
sector, and facilitates the promotion of rapid capital formation (Iyoha
2004).Nigeria has a growing capital market, which has since its inception served as
a veritable source of long term funds to finance investment. Some of the reasons
for promoting an active capital market in Nigeria include
Mobilization of savings for economic growth and development.
Encouragement of efficient allocation of resources through in changes wealth
ownership and composition.
Creation of a healthy private sector and promotion of rapid capital formation.
3
The capital market functions through the stock exchange, a stock exchange is a
market, which facilitated buying, and selling of shares, stocks, bonds, securities
and debentures (Thingon, 2001). The stock exchange is not just a financial
institution, but also the very hub that pivots around which every activities of the
capital market revolve. It is not only crucial, but also central to the entire capital
mobilization processes. „Anao‟ “ND” posits that it is an economic institution,
which sees to the efficient allocation of available capital funds, to diverse uses in
the economy.
1.2 STATEMENT OF THE PROBLEM
The objectives of the capital market at any point in time are geared towards
attaining an appreciable development and growth in the economy and providing a
channel for engaging and mobilizing domestic savings for productive investment.
Apart from its fund mobilization function, it performs intermediary role by making
it possible for those who have surplus funds to be able to loan it out to those in
need of it for productive purpose.
In the last two decades, the link between financial intermediation and economic
growth is a subject of high interest among policy makers and economics around the
world, There have been attempt to empirically asses the role of capital market and
economic development.This have varied in methods and results.
4
Adjasi and Biekpe(2005) found a significant positive impact of capital market on
economic development in counties classified as upper middle income economics.in
the same way(Chen et al 2004) elaborated that the nexus between capital returns
that is stock returns and output growth and the rate of stock return returns is a
leading indicator of output growth various studies such as spears (1991 Levine and
zerous,1998, comincioll,1996 and Demirquc-Kunt 1994) have supported the view
that capital market promote economic development with well functional financial
sector or banking sector, capital market can give a big boost to economic
development. (Behadur and nevpone2006) concluded that stock market fluctuation
predicted the future growth of any economy and causality is found in real
variables.
There are also alternative views of roles that capital market play in economic
development. Apart from the view that stock market maybe having no real effect
on development, there are theoretical concepts that shows that capital market
development may actually hurt economic development. For instance, (stiglitz
1985, 1994 bencivera and smith 1991 and Bhide1993) noted that capital market
can argue that due to their liquidity stock market may hurt development and
growth since saving rates may reduce due to externalities
In capital accumulation diffuse ownership may also negativity affect corporate
governance and invariably the performance of listed firms, this impending the
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growth of capital markets? This suggests that there is neither theoretical nor
empirical consensus on the impact of capital market on economic development.
1.3 RESEARCH QUESTIONS
This study is aimed at assessing the activities of the Nigerian capital market and
the impact it has to the development of the Nigerian economy. The following
questions are therefore raised to guide the study;
1. What is the impact of capital market on the economic development of Nigerian?
2. What is the impact of Nigerian capital market on Nigerian banking system?
1.4 OBJECTIVE OF THE STUDY
The objective of the study is to evaluate the contribution of the
Nigerian stock exchange to the development of the Nigerian economy
The specific objective are
1. To examine the impact of capital market on the Nigerian economy.
2. To examine the impact of capital market on the Nigerian banking system.
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1.5 RESEARCH HYPOTHESIS
According to Nwana 1998 „‟A hypothesis formulation is aimed at delimiting the
direction of searching for evidence everywhere, anywhere .it is based on the above
premise that the following hypothesis is formulated to guide this work
Hoi There is no significant impact of capital market on the economic development
of the country.
HO2 There is no significant relationship between the Nigerian capital market and
banking system.
1.6 SIGNIFICANCE OF THE STUDY
The importance of a developed and liable capital market in the economic
development of Nigerian cannot be our emphasized. This analysis is important as it
would examine to what extent the capital market has contribution to economic
development of Nigerian.
The result from this study is expected to be of great importance to individuals,
investors, and business. Firms and the entire economy as a whole.it will also help
to enlighten the members of the public on the meaning of stocks and shares
inculcating in them the savings and investment habit.
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However, the government and policy makers would find this research handy,
especially in area of policy formulation in restricting the
Capital market, for an improved performance of the aimed at boosting investors to
patronize the stock exchange market in other to enhance their effect on the
economy. This study is also expected to identify some problems encountered in the
capital market by participants and suggest possible means of rectifying them.
1.7 SCOPE AND LIMITATION OF THE STUDY
The focus of the study is limited to the activities of the Nigerian capital market.
And will cover the period 1985- 2011 .this study has no doubt encounter problems
in terms of both internal and external validity. Like any other research study, this
too has some limitations. The problem encountered in the case of embarking on
this research is in two dimensions, finance and time.
Finance is required to enable the researcher to travel from one place to another to
obtain necessary data for the study and also to produce a readable copy.
Time is also another constraint as the research had to apportion her limited time in
ensuring the research becomes successful.
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