THE NIGERIAN CAPITAL MARKET AND ITS EFFECTS ON BUSINESS ORGANIZATIONS
Click here to Get this Complete Project Chapter 1-5
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigerian capital market is a highly specialized and organized financial market and indeed essential agent of business organization and development because of its ability to facilitate and mobilize saving and investment. To a greater extent the positive relationship between capital accumulation and real business organization has long been affirmed in economic theories. The Nigeria capital market is a complex institution where medium and long term funds are put together and made available and also instruments like stock shares, debentures and bonds are transformed (Abudllahi, 2005).
The financial institution comprises of the Nigeria market includes commercial banks, Merchant banks, development bank, insurance companies unit trust, pension fund and the stock exchange. The capital market is broadly categorized into two classes; The primary market and he secondary market (Abu, 2009).
THE PRIMARY MARKET
This is a market in which companies or government can raise funds by issuing shares or loan stocks. Quoted companies can also involve fresh funds. The Nigerian stock exchange is also involved in the primary market.
THE SECONDARY MARKET
This is a market for buying and selling existing securities. Secondary markets are vehicles for providing liquidity to investors. Where securities are open, the stock exchange provides free entry and free exits for investors through trading in secondary market. The Nigeria stock exchange was established in September 15, 1960 as the Lagos stock exchange but actually started operations in june, 1961 prior to this, all formal savings and deposits went through the banking system while major capital balance were invested in the country. On June 5, 1961, the exchange opened its doors for business. It is owned by 135 (one hundred and thirty five) shareholders made up of financial institution stock brokers and individual Nigerians (Brasoveanu, Dragota, Catarama and Semmenescu, 2008).
The Nigerian Stock Exchange has a president and council members, chairman and Board of Directors who are elected at the annual general meeting by members of the exchange. The tenure of the office of the president is limited to a one to three year term. The council is responsible for policy making, but day to day running of the affairs of the exchange is vested in the office of the Director General and its management team (NSE 1999). As at the inception in 1961, the NSE started trading in Lagos with 19 securities valued at N 80 million listed on it. This has grown to 283 listed companies with a total market capitalization of about N 15 million. All listings are included in the only index, the NSE all share index. The NSE is responsible for listing, delisting and general discipline in the stock market as well as the orderly conduct.
The NSE is organized in such a way that only the dealing member companies of the exchange that are allowed to trade on its trading floor on behalf of their numerous clients and there is a regime of rules and regulations to guide the conduct of their operations. It enables the holders of securities to convert them into cash quickly and without inconveniences and also at a compulsory moderate cost. The state of health of the companies is determined by evaluation of studies (Bolbol, Fatheldin.and Omran, 2005).
1.2 STATEMENT OF THE PROBLEM
The following are the statement of problem in this research work:-
The Nigeria capital market is supposed to be an avenue for sourcing long term funds to finance long term project is not as developed as her foreign counterpart. It has therefore not being able to judiciously perform its primary obligation of meeting long term capital needs of the deficit sectors, through efficient accumulation of capital over mobilization of funds from the surplus unit of the economy, and effectively channel mobilized funds for more economic use (Bolbol, Fatheldin and Omran, 2005).
According to Chinwuba and Amos (2011), a critical study of both the real and service sector will elucidate this fact. Another major problem of the study include the buy and hold attitude of Nigerians, massive ignorance of a large population of the Nigerian public, few investments outlets in the market, lack of capital market friendly economic policies and political instability, private sector led economy and less than full operation of recent developments like the Automated Trading system (ATS), Central Securities Clearing System (CSC).
Despite the popular belief that democracy promotes economic activities which in turn engenders business organization, the growth of the capital market in Nigeria is still very small in relation to the size of the economy. Worse still are the attendant ugly consequences of the capital market meltdown, characterized by the crash of the market capitalization. Also, lack of promptness in the release of selected companys result affects the decision making of investors and hence leads to the reduction of individual investors as most likely investors will refuse to participate when information is scarce.
Furthermore, The Nigerian stock exchange downfall is not attributed to global financial crisis but the instability of macroeconomic variables in Nigeria like unfavourable exchange rate, inflationary pressure, and problems of insecurity, inadequate infrastructural facilities to mention a few (Ewah, Essang and Bessey, 2009).
In addition, businesses in the capital market rise and collapse so easily for many reasons including non- availability of long term finance. Using short term finances to pursue long term capital projects can cripple any business and or project considering the match maturity concept that most financial institutions operate wherein they ensure that loans given and debts incurred mature at the same time.
The problems of unclaimed dividends among others have been able to hinder or draw back the swift/ function of the capital market in Nigeria. Also considering the under developed state of the Nigerian stock exchange, what could be done to position it strongly as its western counterparts. Thus, apart from the primary purpose of assessing the Nigerian capital market and its effect on the company, it also assesses the role of capital market towards the Nigeria economy. The linkage between capital market performance and business organization has often generated strong controversy among analysts based on their study of developed and emerging markets (Ilaboya and Ibrahim, 2004).
1.3 OBJECTIVES OF THE STUDY
- To assess the low performance of the capital market impact on business organizations.
- To analyze the rate at which new stocks are issued on the capital market.
- To appraise how the operations of the market could be improved to boost business organization and development in Nigeria.
- To evaluate the operations of the Nigeria capital market.
1.4 RESEARCH QUESTIONS
This research shall be guided by the following research questions.
- How does the capital market impact on business organizations?
- What is the trend of trading activities on the capital market?
- What is the rate at which new stock are issued on the Nigeria capital market?
- How could the capital market through its crucial role stimulate business organization in Nigeria?
1.5 STATEMENT OF HYPOTHESIS
The hypothesis that would be tested in the course of this research is stated below as:
HYPHOTHESIS ONE:
Ho: The Nigerian capital market is no importance to business organization.
H1: The Nigerian Capital market is of major importance to business organizations.
HYPOTHESIS TWO:
Ho: The Nigerian Capital market plays a significant role in fund raising of business organization.
H1: The Nigerian Capital market plays a significant role in fund raising of business organization.
1.6 SIGNIFICANCE OF THE STUDY
In this research work, the researcher intends to study the importance of the Nigerian capital market to business organizations of this country. Apart from its fund mobilization function, it thus performs intermediacy 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 purposes (Orji, 2000).
1.7 THE SCOPE AND LIMITATION OF THE STUDY
This research work will only look at a particular part of the economy (the financial sector) this work will not cover all the facets that make up the financial sector, but shall focus only on the capital market and its activities as its impacts business organizations.
The limitation of the study is as a result of time constraints and distances to be covered in the process of this research project.
1.8 DEFINTION OF TERMS
Capital Market: It is a market where long-term goods are obtained or where long term functional assets such as debenture, stocks, shares bought and sold.
Stock Market: is an institution in a boarding conceived capital Market, consisting of arrangement of mechanisms for raising capital Through the initial issue of securities.
Dividend: A portion of the net earning that has been officially declared by the board of directors of a company for distribution to shareholders.
Prospectus: A prospectus is a document through which a public limited liability company offers for subscription for sales of its shares to the public detailing information about the offer.
Stock Exchange: This is a primary market in which companies and other institutions raise funds by issuing shares or loan stock . it is also a secondary market for buying and selling existing securities (shares and loan stocks)
Stock Brokers: A stock broker is a firm or person who buys or sells securities on behalf of investors for a commission called brokerage.
Get the Complete Project
This is a premium project material and the complete research project plus questionnaires and references can be gotten at an affordable rate of N3,000 for Nigerian clients and $15 for International clients.
Click here to Get this Complete Project Chapter 1-5