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This study investigated the role of Nigeria stock exchange (NSE) on capital formation in Nigeria (1980-2015). It utilized Multiple Linear Regression analysis of the ordinary least square (OLS), Augmented Dickey Fuller (ADF) Test for unit root and other stability tests. The results of the Multiple Linear Regression analysis showed that the estimated coefficient of the independent variable, all share index (ASI) and that of market capitalization (MCAP) are statistically significant. By implication, a unit increase in ASI resulted to an increase or decrease in GFCF in Nigeria while a unit increase in MCAP will result to an increase or decrease in GFCF in Nigeria. The policy implication of this is that measures that will enhance the ASI of the NSE should be encouraged by the financial authorities in Nigeria.












  • Background of the Study

Almost all the economist laid emphasis on capital formation as the major determinant of economic growth. Capital formation is when a society does not apply the whole of it’s current productive activity to the needs and immediate desire of consumption, but directs some proportions of their income into savings and finally invest them into real capital goods in form of tools and instruments, factories, machines and transport facilities, plants and equipments all the various forms of real capital that can so greatly increase the efficiency of productive effort. The essence of capital formation is to divert a portion of the society’s available resources for the purpose of increasing the stock of capital goods so as to make possible expansion of consumable output in the future.

The research focuses it’s attention on Nigerian Stock Exchange which is the most visible mirror of the formal capital market in the country. The Nigerian Stock Exchange is one of the institutions in the capital market, which specializes in the trading of all forms of long-term securities. It is a network of individual institution and instrument. The market plays a central and dispensable role for which it has been variously described as the “hall mark” or the heart of the capital market.

The rapid economic development of any economy depends, among other things, on the flexibility to access adequate financial resources (Alile and Anao, 1990). The desire to develop financial market in an economy is connected with the objective of accelerating industrial and agricultural development. Among this financial market is the stock exchange, which deals with the mobilization of bank medium and long term capital funds (Sule and Momoh, 2009). The mechanism of stock exchange came into existence to enable investment, which were inherently illiquid to become liquid through reconversion into cash at the decision of the investor without inconveniencing the company (Olowe, 1997).

The development of the capital market in Nigeria dates back to 1946, when the first government securities were floated; the institutional facilities for the operation was however absent and did not commence until fifteen years later, when the Lagos Stock Exchange (now the Nigerian Stock Exchange) was established in 1961.

Consequently, in 1953, the Federal Government set up a committee under Professor R.H. Barback to advise on ways and means to fostering the capital market in Nigeria. The report of the committee was published in 1959 and it recommended among other things:

  • The creation of facilities for dealing in shares
  • The establishment of rules regulating transfer and;
  • Measures to encourage saving and issue of government and other organizations securities.

The then Lagos Stock Exchange now Nigerian Stock Exchange was incorporated on 15th September, 1960 through the collective encouragement of the business community, the Nigerian Industrial Development Bank Limited (NIDB) and the Central Bank of Nigeria.

Conclusively, the availability of a secondary market endangers capital formation and socio-economic development. The allocative function is critical in determining the overall growth of the economy and the financial sector. Therefore, the role of the Nigerian Stock Exchange in the economy is an engine for capital formation saddle with the private sector in general to achieve economic development program.

  • Statement Of The Problem

The Nigerian Stock Exchange market is faced with numerous problems which comprises of decreased trading activities whereby there is persistent rise in the demand for securities without a corresponding increase in its supply. In this case, investments are not easily found for purchase.

Despite the number of years since the Nigerian Stock Exchange has been established given the substantial financial resources available in the country, it is deduced that the entire spectrum of the capital market has not been sufficiently active, especially when compared with the capital unit of similar or lesser aged units in other developing countries.

The spinal effect of the global economic crisis on the Nigerian Stock Exchange continued in 2009 with the exorbitant lending rate mounting pressure on the stock market as a result of massive borrowed fund in the market. The rush by stock investors to liquidate their investment to repay their loans in order to avoid the excessive lending rate caused the Nigerian Stock Market to crash. Sere Ejembi, (2008) noted that it is not the global financial crisis and the speculative subprime mortgage bubbles and bust alone that is responsible for the crash of the stock market, other contributory factors lent support. Some of these, namely; margin lending by the deposit money banks (DMBs), stock price appreciation that had no correlation with the fundamentals in the quoting companies and local investors opting to invest in foreign capital markets to take advantage of the low stock price.

This study intends to evaluate the performance of the Nigerian Stock Exchange in terms of its trading activities and determine the extent to which it contributes to the capital formation process of the economy if at all there is causation between them.

  • Research Questions

The study will examine the following questions,

  1. What is the impact of market capitalization on capital formation?
  2. What is the impact of All Share Index on capital formation?

1.4    Objectives Of The Study

This study is primarily aimed at examining critically, the activities and performance of the Nigerian Stock Exchange especially, this study aims to evaluate,

  1. The impact of market capitalization on capital formation.
  2. The impact of All Share Index on capital formation.



  • Research Hypothesis

The hypothesis that could be tested in this study is stated below:

H0:     That market capitalization has no significant impact on the Gross fixed capital formation of the Nigeria economy.

H1:     That market capitalization has significant impact on the Gross fixed capital formation of the Nigeria economy.

H0:     That All share Index has no significant impact on the Gross fixed capital formation of the Nigeria economy.

H1:     That All share Index has significant impact on the Gross fixed capital formation of the Nigeria economy.

1.6       Significance Of The Study

The significant of this research is to examine the usefulness of the Nigerian Stock Exchange as a vehicle for capital formation shows that Nigerian Stock Exchange contributes positively to the national development because it portrays the capabilities to raise funds from the surplus to the deficit units for investment purpose.

Therefore, the design of an optimal capital structure, which ensures adequate and sustainable growth for national development; this is the responsibility of the Nigerian Stock Exchange.

The beneficiaries of this research work are;

 The government: this work will show both the federal and state government the extent to which the role of the Nigeria stock exchange affects investment in the economy, it will also reveal the factors that influences the low or high rates of capital accumulation and the adequate measure that will improve the capital stock for economic growth in Nigeria.

Investors:     private and public investors through this work will know their aggregate contributions in the stock market and the need to foster investment.

Researcher: the research work will provide a wide range of information on the role, performance and impact of NSE and the regulatory bodies of the exchange market and as well deepen the researcher’s knowledge on capital accumulation in the economy.

1.7       Scope of the Study

This work focuses on the impact of Nigeria Stock Exchange on capital formation, it covers the period from 1985 to 2015 (30 Years ) interval.

1.8       Limitations of the Study

During this research work, the researcher recorded the following constraints: limited time due to other socio-economic engagements, limited financial resource, environmental constraints as a result of negative externalities and pollution, insufficient power supply which is a menace embedded in the entire economy.


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