THE IMPACT OF CAPITAL MARKET ON THE NIGERIAN … - THE WHOLE PROJE… · PG/MBA/ 09/53698. BEING A PROJECT RESEARCH SUBMITTED IN PARTIAL ... award of Master of Business Administration

THE IMPACT OF CAPITAL MARKET ON THE NIGERIAN

ECONOMY WITH EMPHASIS ON THE ROLE OF THE

NIGERIAN STOCK EXCHANGE

BY

MBAH EMMANUEL CHIJIOKE REG. NO: PG/MBA/ 09/53698.

DEPARTMENT OF ACCOUNTANCY

FACULTY OF BUSINESS ADMINISTRATION UNIVERSITY OF NIGERIA

ENUGU CAMPUS

JULY, 2011

TITLE PAGE

THE IMPACT OF CAPITAL MARKET ON THE NIGERIAN

ECONOMY WITH EMPHASIS ON THE ROLE OF THE NIGERIAN

STOCK EXCHANGE

BY

MBAH EMMANUEL CHIJIOKE PG/MBA/ 09/53698.

BEING A PROJECT RESEARCH SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD

OF MASTER OF BUSINESS ADMINISTRATION (MBA) DEGREE

IN ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA ENUGU CAMPUS

JULY, 2011.

CERTIFICATION

This is to certify that Mbah Emmanuel Chijioke, an MBA student in the

Department of Accountancy with Registration Number PG | MBA | 09 | 53698, has

satisfactorily completed the requirement for the course and research work for the

award of Master of Business Administration (MBA) Degree in Accountancy.

________________________ _______________________

R.O. UGWOKE Dr. C. M. Odoh

(Head of Department) (Supervisor)

_____________________ _______________________ Date

Date

_______________________

External Examiner

DEDICATION

I dedicate this piece of work to my Loving mother, Madam Martina

Madukaife Mbah and to the memory of my late father, Chief Pulife Mbah and to

all those who seek knowledge for social JUSTICE & EQUITY.

ACKNOWLEDGEMENT

This work has come to a successful completion due to a combination of

efforts, hard work and material support of some individuals.

First and foremost, I am very grateful to Dr. C. M. Odoh (dutifully

represented by Mrs. E. O. Onyeanu) for his patience, guide and encouragement. I

thank him mostly for taking his time to make necessary observation and

corrections.

In the same vane, I wish to use this medium to express my appreciation to

my lecturers: Dr. (Mrs.) R. G. Okafor (H O D, Accountancy Department), Mr. R.

O. Ugwuoke, Mr. Osita Aguolu, Mrs. E. O. Onyeanu and others whose names may

not be mentioned here for unavoidable reason of space but have impacted

positively on us in the course of this programme. May God reward you all

accordingly.

Equally, I wish to express my profound appreciation to the following people:

Engr. & Mrs. J. O. C Okike and Mr. & Mrs. Simeon Okidu for their moral,

material and financial supports. May the good Lord replenish your purse in million

folds. Mrs. Peace Uhaka is not left out. Her prayers and spiritual support is highly

appreciated. And to my typist, Miss Esther, I say thank you!

Finally, I give thanks to God for His abundant mercies, divine guidance and

protection throughout my stay in the University.

To God be the Glory!

MBAH, EMMANUEL C.

ABSTRACT

The researcher’s mind on the topic, “The impact of the Capital market on the

Nigerian Economy with emphasis on the role of the Nigerian Stock Exchange” was

captured when a similar topic was discussed at a seminar organized by the Bureau

for Public Enterprise (BPE) to conscientize and sensitize Nigerian people to accept

the privatization programme. The organizers sought to expose how highly

underutilized the Nigerian Stock market is and what individuals and Corporations

would gain in patronizing the market. They also compared the operations and

volume of transactions with other emerging stock markets in the world. The

research work is basically, all about assessing the extent of the impact of the

capital market on the socio-economic development of this country and an in-depth

search into ways of improving upon the operations of the Nigerian Stock

Exchange. In his findings, the researcher noted (among other things) that there was

underutilization of the Stock Exchange market due to poor enlightenment

campaign, and lack of transparency and accountability on the part of the operators

of the market. In the conclusion, the researcher admitted that the future prospects

of the exchange market is still bright but emphasized that the operators of the

market must engender accountability and transparency as this will go a long way to

re-installing much desired confidence in the investing public and guarantee the

market’s future development.

LIST OF FIGURES

Figure 2.1: Stock Exchange in Operation … … … … 23

Figure 2.2: The Functional Relationship of the NSEC within

the New Issues market … … … … … 36

Figure 2.3: The Functional Relationship of the Stock Exchange

within the Secondary Market … … … … 38

LIST OF TABLES

Table of 2.1: Impact of the Loss of Investors Confidence in the Nigeria Capital Market … … … … … 32

Table 2.8.3: The Daily Stock Summary … … … … 41

Table 4.1: Identify your Sex? … … … … … … 60

Table 4.2: What is your Occupation? … … … … …. 61

Table 4.3: Are you Aware of the Existence of the Nigeria Stock Exchange? … … … … … … 62

Table 4.4: How Familiar are you with the Operations of the Nigerian Stock Exchange … … … … 63

Table 4.5: Are you Aware of the Aims and Functions of the Nigeria Stock Exchange? … … … … 64

Table 4.6: If No 5 is yes, do you make use of the Exchange? … 65

Table 4.7: Where do you (Corporation, Individuals and Government) raise your Fund? … … … … 66

Table 4.8: Why Prefer the Bank as an Outlet? … … … 67

Table 4.9: Has the Nigerian Stock Exchange contributed Significantly to the Development of the Economy? … 68

Table 4.10: Are you Satisfied with the level of Development in the stock Exchange Market? … … … … 69

Table 4.11: Are you satisfied with the Pricing Policy? … … … 73

Table 4.12: Are you Aware of the Introduction of a Computerized System of Clearing Settlement and Delivery of Trade Transaction, the (CSCS)? … … … … … 74

Table 4.13: What is the Movement of Share Prices since the Introduction of Central Security Clearing System? … 75

Table 4.14: Are you aware of the introduction of the Automated Trading System (ATS), through which stockbrokers can trade from their offices and homes? … … 76

Table 4.15: If your answer to 17 is yes, do you think the Automated Training System (ATS) will enhance the operations of the Stock Exchange? … … … 77

Table 4.16: How can you Assess the Impact of Information Technology (internet services) vis-à-vis the operations of the Nigeria Stock Exchange? … … 78

TABLE OF CONTENTS

Pages

Title Page … … …. … … … … … … i

Certification … … …. …. ... … … … … ii

Dedication … … … … … … … … … iii

Acknowledgement … … … … … … … … iv

Abstract … … … … … … … … … … v

List of Figure … … … … … … … … … vi

List of Tables … … … … … … … … vii

Table of Contents … … … … … … … … vi

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study … … … … … … 1

1.1.1 Evolution of the Capital Market … … … … … 3

1.2 Statement of the Research Problems … … … … 7

1.3 Objective of the Study … … … … … … 8

1.4 Research Question … … … … … … … 8

1.5 Research Hypothesis … … … … … … 9

1.6 Significance of the Study … … … … … … 10

1.7 Scope of the Study … … … … … … … 10

1.8 Limitation of the Study … … … … … … 11

1.9 Definition of Terms … .. … … … … … 12

References … … … … … … … … 14

CHAPTER TWO: REVIEW OF THE RELATED LITERATURE

2.1 Wall Street – Where It All Began … … … … 15

2.2 The Nigerian Capital Market … … … … … 16

2.3 The Role of the Nigerian Capital Market … … … … 17

2.3.1 The Pooling Function … … … … … … 19

2.3.2 Facilitating Capital Formation … … … … … 19

2.3.3 Risk Reduction Function … … … … … … 20

2.4 The concept of the Nigeria Stock Exchange … … … 20

2.5 The Nigerian Stock Exchange Market … … … 23

2.5.1 Membership of the Nigerian Stock Exchange … … 24

2.5.2 Functions and Importance of the Nigerian Stock Exchange 25

2.6 Securities and Exchange Commission (SEC) … … 27

2.6.1 Duties and Functions of the Securities

and Exchange Commission … … … … … 28

2.7 The Impact of the NSE Crisis on the Nigerian Capital Market 29

2.8 The Stock Exchange in Operation … … … … 34

2.8.1 The Primary Market … … … … … … 34

2.8.2 Evaluation of the Nigerian Stock Exchange … … … 39

2.8.3 The Daily Stock Summary … … … … … 41

2.9 Problems Associated with the Nigerian Stock Exchange … 47

References … … … … … … … … 50

CHAPTER THREE: RESEARCH METHODOLOGY

3.1 Introduction ... … … … … … … … 51

3.2 Research Design … … … … … … … 51

3.3 Sources of Data … … … … … … … 52

3.3.1 Primary Data … …. … … … … … … 52

3.3.2 Secondary Data … … … … … … … 53

3.4 Method of Data Collection … … … … … … 53

3.4.1 Reasons for using the Aforementioned Methods … … 53

3.5 Determination of Population Size … … … … 54

3.6 Sample Procedure … … … … … … … 54

3.7 Methods of Administering Questionnaires … … … 55

3.8 Decision Rule … … … … … … … 55

References … … … … … … … … 57

CHAPTER FOUR: PRESENTATION AND ANALYSIS

4.1 Introduction … … … … … … … … 58

4.2 Presentation and Analysis of Responses from Questionnaire 59

4.3 Analysis of Interview … … … … … … 80

CHAPTER FIVE: SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATIONS.

5.1 Summary of Findings … … … … … 86

5.2 Conclusion … … … … … … … … 87

5.3 Recommendations … … …. … … … … 88

Bibliography … … … … … … … 90

Appendix – Questionnaire … … … … … 91

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Nigeria has a formal and active capital market. Before 1961, nearly all formal

savings and deposits went through the banking system while the then colonial

masters invested major capital balances for the country on the London stock

exchange. However, following the establishment of the CENTRAL BANK OF

NIGERIA in 1959, it was logical to have a stock exchange in 1960, which

commenced operations in 1961. Thus, the foundation was ordered for the

operations of the Nigerian capital market. The capital market tends to provide a

forum for the interaction of the economic surplus and economic deficits to attract

business under a highly regulated environment.

Earlier in 1959, the Central Bank of Nigeria had floated the first Nigerian

development loan stock, which was listed overseas. Subsequent issues in 1961 and

thereafter were listed on the new local exchange.

The Nigerian stock exchange is a private, non-profit making organization

limited by guarantee. It was incorporated via the inspiration and support of

businessmen and the federal government through the CBN, owned by about 300

members. The membership includes financial institutions, stockbrokers and

individual Nigerian of high integrity who have contributed to the development of

the stock market and the Nigerian economy. The council members (Board of

Director) of the stock exchange are elected at apiece annual general meeting by

members of the exchange. The tenure of the presidency is limited to one three-year

term. The council is responsible for policy-making but the Director -General

(formerly Prof. Ndi Okereke Onyiuke , Emmanuel Ikhazobor) and presently at the

time of this research, Dr. Oscar Onyema and his team of executives administer the

day to day affairs of the exchange. The council members, management and staff of

the Nigerian stock exchange as well as stockbrokers are subject to a stringent

regime of codes of conduct, which calls for a higher degree of integrity, discipline,

skill and high sense of patriotism.

Dealing members of the stock exchange are the stock broking firms licensed

by the exchange to purchase and sell shares on behalf of the investing public.

There are over 200 of them at the moment.

The exchange is a Self-Regulatory Organization (SRO), making and

enforcing rules for its members. In 1977, the exchange was reorganized and

renamed “The Nigerian Stock Exchange (NSE)”. Today, the NSE has 10

functional trading floors in different parts of the country, namely; Lagos, Abuja,

Kaduna, Port Harcourt, Kano, Onitsha, Ibadan, Yola, Benin, Uyo and Ilorin.

1.1.1 Evolution of the Nigerian Capital Market

The Nigerian capital market was established in 1960 and became open for

operation in 1961. However, the evolution of the Nigerian capital market can be

traced to as far back as 1946 when the government floated a N600,000 (1.25% of

Government stock as part of the Nigerian Ten-Year plan embarked on to help raise

funds from the London Stock Exchange.

In May 1959, the Central Bank of Nigeria (CBN) in pursuance of its role

with respect to the development a capital market floated the first federation of

Nigerian development loan of N4million on behalf of the government. Due to non-

existence of a formal securities market then, the CBN had to ensure that the stacks

carried with them reasonable assurance of marketability by introducing a central

register for matching buyers and sellers of shares and suggesting prices at which

the deals took place.

Following the favorable report of the Barback committee, whose

recommendation led to the registration of “The Lagos Stock Exchange” in March,

1960. This was subsequently followed by its incorporation under Section 2 Cap 7

on the 15th September, 1960. Trading however commenced formally on June 5

1961 after the enactment of Lagos Stock Exchange (LSE) Act of 1961.

Some catalytic institutions were established between 1959 and 1965. These

institutions are namely; Investment Company of Nigeria (ICON) ltd, Nigeria

Acceptance ltd (now NAL merchant Bank), and Nigeria Stock Brokers ltd.

The establishment of the above institutions gave rise to the need for the

orderly development of the capital market by regulating the time at which the

issues were brought to the market. This necessitated the setting up of the Capital

Issues Committee, an adhoc body with no legal backing under the CBN in 1962.

Trading at that period was however very low because of predominant lack of

awareness of the mechanics of stock exchange transactions and poor

communication. An evidence of the prevailing inertia in the stock exchange market

at the time is the fact that between 1962- 1970, the exchange handled only four

new issues of industrial securities. Issues of federal government were once a year

and annual turnover rarely exceeded N15m of which government stock accounted

for over 90%.

The market however experienced a significant growth with the

implementation of the Nigerian Enterprises Promotion Decree of 1972 and 1977.

The companies that complied with these decrees through the Nigerian stock market

boosted equity listing such that by the end of 1980, a total of 91 companies were

listed on the exchange.

In 1973, the government promulgated the Capital Issues Commission (CIC)

Decree of 1973 to give legal backing and more power to the commission in place

of the capital issues committee so as to enhance the implementation of the Nigeria

Enterprises Promotion Decree (NEPD).

However, the CIC continued to operate as a department in the CBN but had

the function of determining the price, timing, and the amount of offers for sale or

subscription as set up by the Financial System Review Committee headed by Dr.

Pius Okigbo (the then Economic Adviser to the federal government).

“Taking into account the historical development of the Financial System in

Nigeria ;its evolution and impact on socio-economic and political development of

an egalitarian society, the Financial System Review Committee was charged with

the following terms of reference:

I. To examine the adequacy, relevance or otherwise of the institution and the

structure of the financial system to meet the needs of the economy for rapid

economic development.

II. To examine the organizational and ownership structures of institutions in the

system and evaluate their viability in the context of the stated preamble, the

economy’s future domestic and international requirements and development

trends.

III. To study operational trends in the system with particular reference to

promotional activities of the financial institutions generally.

IV. To make recommendations in the light of their findings in respect of (1) and

above all.

V. Any other matters or issues which the committee in its own judgment deems

relevant and helpful in the successful discharge of their task”.

Dr. P. C Okigbo’s committee among other things recommended the following:

I. Facilitate effective management of the economy

II. Provide non-inflationary support for the economy

III. Ensure that no viable project is frustrated singly for lack of fund

IV. Achieve greater mobilization of savings and its efficient and effective

channeling

V. Insulate the economy as much as possible and as much as desirable from the

vicissitudes of the international economic scene.

VI. The establishment of a Securities and Exchange Commission (SEC) to

replace Capital Issues Commission (CIC) and the establishment of additional

stock exchange. This resulted to the establishment of trading floors at

Kaduna, Port Harcourt and the Lagos Stock Exchange (LSE) that was later

redesigned the Nigerian Stock Exchange (NSE).

1.2 STATEMENT OF THE RESEARCH PROBLEMS

This research work is concerned with the reasons why the Nigerian Stock

Exchange has not made the much desired impact on the economy of this country as

designed by the decree establishing it. It will also evaluate the impact of the market

with a view to finding solutions to the following problems:

� How can the desired awareness and confidence be instilled on this market?

� How can the functions and roles of this market in facilitating the growth of

the economy be achieved?

� How can this market be developed to meet international standard?

At the Nigerian Stock Exchange (NSE), buyers and sellers are the same

people. To ensure sound economic development, trading on the exchange has to be

extensive. This is because an enduring economic development cannot be achieved

if the market is not properly developed. The market and its operators must be seen

creating the economic impact and confidence that will enhance the capacity of the

market.

1.3 OBJECTIVE OF THE STUDY

The study has the main specific objective which is to ascertain the impact of

the capital market on the Nigerian economy and to appraise the awareness or

otherwise of the existence of the stock market by showing its impact in the

business world. Other specific objectives were raised:

1. To determine the relationship between the capital market and Nigerian

Economy;

2. To determine or rather to evaluate if the deficiencies of the market affect

Nigerian Economy;

3. To establish the effect of the Nigerian stock exchange crisis on Nigerian

capital market;

4. To ascertain if there are challenges of the Nigerian stock exchange in

developing the capital market;

5. To determine the role of capital market in developing the Nigerian

Economy.

1.4 RESEARCH QUESTIONS

To achieve the above objectives, the following research questions were

raised:

1. Is there relationship between capital market and Nigerian Economy?

2. How do the deficiencies of the Nigerian stock exchange affect the

Nigerian economy?

3. How does the crisis in the Nigerian stock exchange affect Nigerian

Capital market?

4. What are the challenges of the Nigerian stock exchange in developing the

capital market?

5. What are the roles of the capital market in developing Nigerian

economy?

1.5 RESEARCH HYPOTHESIS

1. There is no significant relationship between capital market and Nigerian

economy.

2. The deficiencies of Nigerian stock exchange market do not affect Nigerian

economy.

3. The crises of Nigerian stock exchange negatively affect Nigerian capital

market.

4. The Nigerian stock exchange does not face any challenge in developing

capital market.

5. Capital Market did not play a significant role in developing Nigerian

Economy.

1.5 SIGNIFICANCE OF THE STUDY

It is a noted fact that for a meaningful transformation of a country to take

place, her capital market must be effective and active.

This study will be of significant interest to individuals, corporate bodies and

government as it would help them in mobilizing funds from the various networks

of institutions that exist in the market.

This study will also be significant to the institutional operators of the market

especially the Nigerian Securities and Exchange Commission (SEC) and the future

researchers who might want to share this experience. This study will however offer

some invaluable points that will bring to the researcher’s mind on the functions and

prospect of the Nigerian stock market.

1.7 SCOPE OF THE STUDY

The study covers the Nigerian capital market with a holistic emphasis on the

roles of the Nigerian stock exchange with Onitsha branch of the exchange as a

contact point. It covers all relevant issues pertaining to the Nigerian capital market

and the Nigerian stock exchange Vis-à-vis the Nigerian economy.

1.8 LIMITATIONS OF THE STUDY

In the course of this study, the researcher came across problems which in

one way or the other challenge the simple flow of this work. These include:

i. DISTANCE: In the course of this study, the researcher was visage with the

challenge of actually travelling to the Nigerian stock exchange in Onitsha

and visiting some stock broking firms in Enugu.

ii. TIME: It seems there was not enough time to meet up with this work. But

however, the researcher properly managed his time effectively and

efficiently.

iii. FINANCE: at a time it was difficult and nearly impossible to continue

because of demand for finance.

iv. FORECASTING AND HOARDING OF INFORMATION: Forecasting

seems to be prevalent in the market as most of the transactions were

dependent on it. Equally, I observed in the course of this research that those

approve for information were not really willing to give it.

v. FATIGUE: The human bourgeois also tried to hamper this study by

constant body breakdown as a result of fatigue, tiredness and distractions.

1.9 DEFINITION OF TERMS

To ensure comprehensive understanding of this research work, the under

listed terms are defined thus:

1. Stockbroker: Is agent who purchases and sells securities on a stock

exchange market on behalf of clients and receive remuneration for the

service in form of a commission.

2. Stock Exchange: Are a market where securities (bonds, stocks and shares of

varying types) are traded openly and where one can purchase or sell any of

such securities with relative ease.

3. Capital Market: Is a market in which long term capital is raised by industry

and commerce, the government and local authorities. Simply, it is that part

of the financial market that provides facilities for the transfer of medium and

long-term funds to various economic units.

4. Stockholders: Individuals, businesses and groups owning stocks in a

corporation.

5. Financial Instrument: Is a contract involving a financial obligation.

Examples include stock, bonds, loans and derivatives.

6. Shares: A share confers on its owner a legal right to have part of the

company’s profit and to exercise any voting rights attached to that share.

7. New Issue Market: Market where stocks are issued for the first time to the

members of the public.

8. The Secondary Market: This is a market where stocks are not being sold

for the first time. It can also be referred to as the market for second hand

stocks.

9. Deficit Savings Unit (DSU): An economic unit whose current income is

less than its current expenditure.

10. Savings-Surplus Economic Units: These are units with more funds than

they require for current consumption. They are therefore the ultimate savers

or fund suppliers to the system.

11. Financial Institutions: These are institutions that use their funds chiefly to

purchase financial assets, deposits, bonds, loans and so on.

REFERENCES

Alile H.I (1984); the Nigerian Stock Exchange Historical Operations and

Contributions to Economic Development: Bullion of the Central Bank of Nigeria.

Lead Capital (2010): Stock watch, a Guardian publication. Onyiuke Ndi Okereke J. (2010), Overview of the Nigerian Capital Market. Okigbo P. C (1981); the Nigerian Financial System, Longman Essex, U.K, Oxford Dictionary of Book-keeping, “Third Edition”. The Guardian Newspaper: Friday August 6, 2010 p.14

CHAPTER TWO

LITERATURE REVIEW

2.1 WALL STREET- WHERE IT ALL BEGAN

Securities are traded in a variety of forms and in diverse trading places. Wall

Street is where it all began (The New York Institute Of Finance; 1992), but one

will see the Nigerian financial market place this day bears tiny resemblances to its

origin there. According to the Institute, prior to the revolution, New York City’s

leading merchants met regular under a buttonwood tree located at what is this day

the corner of Wall and Broad Streets. These primeval merchants traded in

commodities such as furs, tobacco, and currencies and provided services such as

insuring ships’ cargoes.

As companies were organized to conduct different types of commercial

activities such as banking, retail trade or shipping, an informal market in shares of

these companies developed among merchants who controlled them. Twenty four of

these primeval merchants or stockbrokers as they came to be called entered into a

formal agreement on March 17, 1792, to trade only among themselves and to

maintain concurred-on commission rates. This marked the founding of what is this

day the New York Stock Exchange (NYSE).

2.2 THE NIGERIAN CAPITAL MARKET

The capital market, according to Professor Ndi Okereke Onyiuke (2010), is

fabricated up of markets and institutions, which assist the issuance and secondary

trading of long-term financial instruments. She argued that the capital market

unlike the money market which functions basically to wage short-term funds

provides funds to industries and government to meet their long-term capital

requirements, such as funding of fixed investments-buildings, plants, machinery,

bridges etc.

Emekekwue P.(1996,22), defined the capital market as that part of the

financial market that provides facilities for transfer of medium and long term funds

to the various economic units.

Adekanye F.(1986,25), defined the capital market as that of the financial

market from which large companies and private enterprises attract long-term

investment funds through a network of financial institutions and stockbrokers

licensed to perform capital market functions.

The networks of financial institutions that participate in the capital market are

namely:

1. Nigerian Stock Exchange.

2. Insurance companies

3. Nigerian Securities and Exchange Commission (SEC)

4. Discount Houses/ Stock broking firms

5. Merchant Banks.

6. Development Banks.

7. Pension funds.

8. Central Bank of Nigeria (CBN).

9. Investment firms.

10. Individuals.

2.3 THE ROLES OF THE NIGERIAN CAPITAL MARKET

The Nigerian capital market is a market for sourcing of medium and long-

term funds by both the government and private sectors of the economy. The

strategic roles of the capital market in the allocation of scarce financial resources

for rapid economic growth and development of any nation is well documented. For

example, Oladejo R. (2003) enumerates the gains of the Nigerian capital market as

follows:

I. Helps the economy to increase capital formation;

II. Provides funds to government and companies at more captivating terms;

III. It also provides the necessary elements to manage financial risks and

IV. Ensures continuity of the enterprise long after the founder.

In the book “The guide to investing in emerging securities market”, Dr. B.

Persuade (1990), further enumerates the role of capital markets in economic

development to include:

a) It provides additional channels for encouraging and mobilizing domestic

savings for productive investments and substitute bank deposits, real estate

investment and financing of consumption loans.

b) It fosters the growth of the domestic financial services sector and various

firms of institutional savings such as life insurance and pensions.

c) It provides savers with superior endorsement than most debt instruments

against inflation and currency depreciation and thus alleviates two of the

major reasons encouraging the flight of domestic capital abroad as well as

providing captivating automobile for repatriating flight capital.

d) It encourages privatization by increasing the marketability of new issues.

And this marketability facilitates the dispersal of ownership from traditional,

industrial and financial interests.

e) It improves the gearing of the domestic corporate sector by facilitating

equity financing, and this helps to reduce corporate dependence on

borrowing, thus making the financial system more solvent.

f) It provides, through equity financing, a cushion for companies against the

variability of cash flows and even doable losses.

g) Also, it is permanent financing which does not demand regular fixed returns

like debt.

Writing further on the role of Capital market, Emekekwue P. (1996: 16)

categorized these functions into three major headings namely:

1. The Pooling Function.

2. Facilitating Capital Formation.

3. Risk Reduction Function

2.3.1 The Pooling Function

The capital market through its agencies like banks, insurance companies etc

pools the resources of the economic surplus units and channel them to economic

deficit units who will then put such funds to productive use.

2.3.2 Facilitating Capital Formation

Emekekwue P.(1996,16) stated that in disbursing the resources that they

have pooled together, the capital market through its agencies ensures that the funds

are given to those economic units that will utilize the funds judiciously so as to

increase their capital stock. To that effect, the economic units receiving the pooled

resources have increased their capital stock hence financial institutions facilitate

capital formation.

2.3.3 Risk Reduction Function

Through its resource pooling (savings) function acting as conduit pipe to

channel those resources to savings deficit economic units, the financial institutions

diversify ways for existing resources to meet with competing needs. This

diversification process of resources reduces risk inherent in investment.

With all the above enumerated roles of the Nigerian capital market however,

attainment of such goals is not feasible without the pivotal role of the Nigerian

Stock Exchange. The Nigerian capital market without the Nigerian stock exchange

is like an automobile without fuel to propel it. So, next pages will focus on the

Stock exchange.

2.3 THE CONCEPT OF A STOCK EXCHANGE

There are many views of what a stock exchange is. To F. E Armstrong

(1994), author of “The book of the Stock Exchange” a stock exchange is defined as

the citadel of Capital market, the temple of values. It is the axe of which the whole

financial structure of the capitalist system turns”.

Literally however, a stock exchange can be described as a market for

securities. A place where securities (bonds, stocks are bought and |or sold any of

such securities) with relative ease. According to Alile and Anao (1986; 29),

securities are documentary evidence of ownership or entitlement to claim upon the

assets of the issuing organization, government. These documentary evidences

usually have no fixed or absolute value but are traded on the stock exchange at

values which are subjectively determined by those buying or selling them.

Professor F. Okafor (1983) describes a stock exchange as an organized

secondary market since a stock exchange is strictly a market for existing rather

than new securities. The stock exchange provides an avenue for the movement of

long-term capital funds from those with savings to invest in those areas of

industries, commerce and government where funds are absent for expansion and

other developmental purposes.

The stock exchange is also an institution which sees to the efficient

allocation of acquirable capital funds to the diverse uses in the economy, and

through its sensitive pricing mechanism ensures that so much of the total

acquirable capital resources are allocated to apiece firm within apiece industry as

that industry deserves to have, having regards to their relative contribution to total

societal wealth or satisfaction vis-à-vis other firms or industry.

According to Alile and Anao (1986), the stock exchange can also be a

mechanism (barometer as some would suggest) which can measure and detect the

symptoms of an impending economic boom or decline long before the predicted

prosperity or decline actually occurs. The stock exchange is healthy to change in

economic conditions and trends which are a reflection of the total psychology or

judgments of persons using the stock exchange, among which the professional

investment economist or analyst exerts the greatest influence.

The stock exchange comprises of different individuals, firms, institutions

and activities which relate to it. This can be demonstrated diagrammatically thus:

Fig.2.1

Savers underwriters NIGERIAN ENTERPRISE

PROMOTION BOARD

NSE STOCK EXCHANGE FUND ISSUING HOUSE

FUND USERS

Stockbroker security register Professional group

(solicitors/Accountant/ valuers)

Source: Alile and Anao’s Stock Exchange in Operation. Pg. 27

2.4 THE NIGERIAN STOCK EXCHANGE MARKET

The Nigerian stock exchange like any other stock exchange is an organized

auction market where buyers and sellers meet, through their brokers to effect

transactions in securities that have been listed. It is a non-profit making

organization with association of persons who have either bought shares from the

association or they have subscribed originally to the memorandum and articles of

association. The Nigerian stock exchange market provides a forum for all parties

namely; the interested investors, intermediaries, willing buyers and sellers to

interact and consummate economic deals on securities under the supervision of the

government regulatory agencies like the Securities and Exchange Commission

(SEC).

According to G. Onosede (1983; 23) a stock exchange market is where

securities (shares, bonds and stocks) are bought and sold openly with relative ease.

It is the intermediaries between those who wish to raise money for projects and

those who wish to invest in projects.

Alile, H.I (1988) defined stock exchange market as a place where enormous

capital which is required to operate the huge industrial and commercial

corporations of today can be raised in such large amounts and at such competitive

terms (costs, conditions, length of negotiations etc) that no other institutions in the

capitalist system can possibly match. Supporting the above assertion, Hanson J. L

(1982;12) defined the stock exchange market as a place where dealings in the

securities of Companies and the public sector take place between those wanting to

buy securities and those wanting to sell them.

2.4.1 Membership of the Nigerian Stock Exchange

The membership of the Nigerian Stock Exchange can be classified into three

broad headings namely:

1. Foundation Members: Who signed the Memorandum of Understanding

and the Articles of Association of the NSE on the 15th of September, 1990 at its

operation. They are:

1. John Holt Nigeria Limited

2. C. T Brewing and co. Nigeria Limited

3. The Investment Company of Nigeria (ICON) Limited

4. Chief Theophilus Adebayo Doherty.

5. Chief Odumegwu Ojukwu.

6. Mr. Akintola Williams

7. Alhaji Shehu Bukers

2. Ordinary Members: These are members who on application in accordance

to the articles of the NSE were admitted into the register of membership.

3. Dealing Members: Refer to individuals, firms, or corporate bodies licensed

by the Council of the NSE to deal on the Nigerian Stock Exchange.

2.4.2 Functions and Importance of the Nigerian Stock Exchange

The Nigerian stock exchange is a Self-Regulatory Organization (SRO),

making and enforcing rules for its members. It regulates its members (brokerage

firms). It also regulates its listed companies to ensure compliance with listing rules.

Femi Adekanye (1986) enumerated the functions of the Nigerian stock exchange to

include the following:

1. To act as the central meeting place for members to buy and sell existing

stocks and shares and for granting quotations to new shares| issues through

the provision of new or fresh capital raised through the market.

2. To provide machinery through stocks and shares for mobilizing private and

public savings and making these available for productive investment.

Supporting the above points, Yusuf R. O (2003, 15) stated that without the

capital market being fully participatory, growing the economy will continue

to be a difficult task..

Femi Adekanye (1986, 13) went further to enumerate the functions of the

stock exchange to include:

3. To provide opportunities for the continued operation and attraction of

foreign capital for Nigeria’s development.

4. To facilitate dealings in government securities.

5. To prescribe requirements for new listings and to regulate secondary trading

activity and the activities of its dealing members.

6. To make information on the quoted companies available for fair dealings.

7. To protect the public from shady dealings and practice in quoted securities

with the objective of ensuring fair dealings.

2.5 SECURITIES AND EXCHANGE COMMISSION (SEC).

The Nigerian Securities and Exchange Commission was established in 1977

by securities Act of 1979 and re-enacted in 1988 to be the apex regulatory body of

the Nigerian capital market. In other words, it is the government regulator of the

Nigerian capital market whose legal muscle is derived from the investments and

securities act of 1999(ISA).

Securities and Exchange Commission was established as a result of the

observation of the Industries Review Panel that examined the short-comings in the

implementation of the indigenization exercise and government’s acceptance of the

recommendation of Okigbo’s Financial System Review Committee. The Securities

and Exchange Commission (SEC) replaced the Capital Issues Commission (CIC).

2.5.1 Duties and Functions of Securities and Exchange Commission (SEC).

The Securities and Exchange Commission performs the following functions:

i. Investors’ endorsement thereby enhancing thereby enhancing their

confidence in the capital market.

ii. It ensures orderly, fair and equitable dealings in securities business.

iii. Promotes capital market growth and development.

iv. It ensures that information on the quoted companies is made available at all

times in an efficient manner.

v. It creates the necessary atmosphere for the orderly growth and development

of the market thereby giving full effect to the provision of the Decree.

vi. Price determination: this is one of the most important functions of the

Securities and Exchange Commission. This is because if prices are not well

fixed, the parties involved may not be satisfied.

vii. Above all, it is the apex regulatory body for NSE and its branches to which

it is at liberty to delegate powers.

2.6 IMPACT OF THE NSE CRISIS ON THE NIGERIAN CAPITAL

MARKET

Basically, the imbroglio in the Nigerian Stock Exchange (NSE) has had far

reaching impact in the Nigerian capital market. The impact of the crisis in the

capital market is both positive and negative one.

In the positive sense, the shake up in the Nigerian stock exchange was

necessary for the endorsement and measure of investors’ interests.

According to Lanre (2010), investors would benefit from the turn of event

because the unfolding scenario is capable of lifting investors’ confidence in the

market since it is meant to protect their investments.

Another positive impact in the crisis is its capability to educate investors and

the general public on the state of affairs in the market.

No doubt the turn of events in the capital market is not palatable with

investors and economy at large, but it sure has a positive impact on how investors

should approach the capital market. It is obvious from the unfolding events that

most investors and stockbrokers approach the Nigerian capital market as though it

were money market. They invest and hope to reap 100% return in few months

time. Their desire to reap in short-term motivated them to engage in high

speculations which invariably influenced stock prices.

The timely sanction of the management of the NSE by the SEC is a positive

pointer that the regulatory body is not in forgetfulness of sharp practices in the

capital market. This is in tandem to her promises when she took over as DG of

SEC. Barely a month after she assumed office as the Director General of SEC, Ms

Arunma Oteh, promised tougher sanctions for anyone who infringes on capital

market’s regulations. She expressed her determination to eliminate sharp practices,

deter malpractice, and change behaviors by ensuring that both the institutional and

individualized costs of any wrong doing are extremely high”.

In an interview allowed to Daily Sun on Monday, August 23, 2010, the

president of Chartered Institute Bankers of Nigeria (CIBN), Laoye Jaiye Ola

pointed out that the probing of the NSE management was necessary to engender

accountability and transparency in the market.

However, the negative impact of the crisis is far more reaching than the positive

effect. The question of investors’ confidence in the market is in doubt as investors

are gradually pulling off their investment from the market. According to a former

governor in Ogun State, Olusegun Osoba, the hundreds of millions of naira he sank

on stocks had all gone down the drain. His regrets: “If I had known it would be like

this, I would have stuck to my strategy of buying property. I was persuaded into it

and it hit me hard. You can envision when First Bank went from N48 to N13. Then

Access Bank went from N20 to N3”. According to Mr. Oladipo Williams, the

immediate past president of Chartered Institute of Stockbrokers (CIS), “there is

considerable loss of confidence by the generality of investors which invariably

causes low patronage in the market.

Dr. Prosper Ahworegbe, a medical director/shareholder, stated “the profit

had discouraged him and his friends from investing in the market for now because

according to him, he has suffered enough losses and sleepless nights over the

crisis”. As a result of loss of investors’ confidence in the market, the all share

index depreciated by 105.39 points or 0.4 per cent to close on Friday, August

6,2010 at 25,738.79 While market capitalization lose lower at N6.3 trillion (from

N15 trillion).

The plateau below represents the impact of loss of investors’ confidence in the

Nigerian Capital Market.

Table 2.1

Date Share

Index

No. of

Deals

Volumes of

Shares

Values of

Shares

Market

Capitalization

2/8/2010 25,634.39 5,997 193.3million N2billion N6,269trillion

3/8/2010 25,418.84 6,804 266.2million N1.2billion N6,216trillion


5/8/2010 25,715.39 1,882 129.1million N639.4million N6,289trillion





13/8/2010 25,984.80 6,092 145.2million N2.3billion N6110trillion


17/8/2010 25,170.02 6,285 263million N2.1billion N6,155trillion




Source: Lead Capital Regular Market Report. (August 2010).

From the above data, it is clear the loss of investors’ confidence has struck

the market, reducing the market capitalization from N15trillion to N6trillion.

Beyond investors’ confidence, however, the stock market is characterized by

its volatility. What causes its rises and falls has several explanations. Some of them

are obvious whereas others are not easily so determined. Most of the market

movers are economic, political and societal character.

According to Hulbert (2008;37), some of the factors that cause movement in

the stock market have long term effects while the influences of others are felt only

in the short-term.

Some of the easily determined market movers include the following:

i. Inflation

ii. Earnings

iii. Interest rates

iv. Domestic political run out

v. Terrorism and times of war

vi. Oil and energy prices

vii. Crime and fraud

viii. Uncertainty

2.7 THE STOCK EXCHANGE IN OPERATION

The operation of the Nigerian Stock Exchange is organized into the primary

and secondary market. Securities listed on this market include:

• Government notes and bonds

• Principal bonds

• Corporate bonds

• Corporate stocks

• Mortgages.

The above securities can be classified as debt securities or equity securities.

Debt instruments have financial claims in which the issuer has to pay interest at

intervals and eventually redeem the issue at a future date; example is the federal

government stocks and industrial loans, preference stocks and bonds.

Equity on the other hand refers to the capital of the owners of the firms, example,

ordinary shares. It is viewed and of course, a source of permanent capital with no

contractual obligation by the firm.

2.7.1 The Primary Market

Also known as market for new securities, the primary market is concerned

with the initial issue of securities. The primary market securities may be issued

through the following ways:

• Offer for subscription

• Offer for sale

• Right issue

• Introduction and

• Private placement

Offer for Subscription

According to Emekekwue P. (1996; 359), it is direct issues to the public by

public companies. It is a situation where new shareholders are invited to subscribe

to the shares of a company as in supplementary issue. The proceeds of the issue go

to the company making the issue.

Offer for Sale: According to Emekekwue: according to Emekekwue (1996;361), it

is a sale made by existing owner of shares usually the principal owner of a business

which has been turned into a public company, proceeds of which go to the vendors

and not the company.

Right Issue: This is a situation whereby offers to buy more shares are made to

existing shareholders based on specific terms, sometimes at concessionaire prices.

Proceeds go to the company usually to finance long-term projects.

Introduction: is a situation where a company seeking quotation already has enough

shares held by the public.

Private Placement: Placing can be a popular means by which small companies

can approach the stock exchange for the first time to either raise new money or to

float off the existing shares on the market or combination of both. The company or

the vendor can by this method escape payment of both the underwriting

commission and payment of a fee to issuing house.

Securities are approved by the council of the exchange after the approval of all

applications made to it. The SEC determines the price at which these securities are

to be sold before activities in the primary market commence.

Figure 2.2 Shows the Functional Relationship of the NSEC within the new

Issues Market

Source: S. B Falegan” Nigeria’s Financial System” pg.241

Minister of Finance

N.S.E.C

Stock Exchange

Market

President in council

issuers investor

Issuing

House

Notes:

a. Issuer enters into an underwriting agreement with underwriting syndicate

and applies for listing of the newly offered securities on the stock exchange

before public offering.

b. Underwriters make a firm commitment on newly issued securities and

distribute them to the general investors. Investors include individuals and

institutional investment.

c. Stock exchange market via SEC’s surveillance examines the registration

statement for public offerings of corporate securities.

d. SEC also formulates policies for further offerings and encouraging non-

profit companies to go public.

e. President in council approves rules and regulations of the SEC.

The secondary market on the other hand is the market for trading in

outstanding securities. That is to say those securities that have been traded, bought

or sold are categorized under the secondary market. The secondary market

augments the supply of funds to the primary market.

Alile and Anao (1986, 23) pointed out that the secondary market is what

properly constitutes the stock exchange because it is the mechanism that gives

liquidity to the securities listed on the exchange. They went further by saying that

if there were no secondary market in which investors can liquidate their

investments as and when necessary, many investors may not buy new shares in the

first place.

Fig. 2.3: Shows the Functional Relationship of the Stock Exchange in the

Secondary Market.

Source: S. B. Falegan “Nigeria’s financial system” (1985: 242)

2.7.2 Evaluation of the Nigerian Stock Exchange

In evaluating the performance of the exchange, certain questions are worth

considering:

President in council

Investors Investors

S.E.C

NSE

Issuing House Purchaser Sellers

Investor Investor

Minister of finance

1. What is the extent of the usage of external finance in Nigeria?

Okigbo, 1981, states that most Nigerians depend on internal finance for

expansion and growth rather than on external finance. This he says dampens the

effectiveness of the market. He contended that other outlets for raising funds exist,

as such; the stock exchange seems to be ignored.

Speaking on the strategies for deepening the capital market, Akingbola in

Vanguard of 14 march, 2003, posited that though the Securities and Exchange

Commission (SEC) and the Nigerian Stock Exchange have made remarkable

strides in the process and transactional capabilities in recent years, it is still vital

that they continuously review their operations to eliminate to various bottlenecks to

the hitch free operations of the stock market.

Ade and Wole (1982, 225) comment that regarding the Indigenization

Decree, the stock exchange has been fairly successful. They contended that the

exchange has been successful in increasing the number of securities traded in the

exchange and therefore had contributed in the development of the economy.

Gbenga A. and Dianna D. (1997,24) in their presentation “Nigerian stock in

unprecedented boom” added that the exchange has increased the number of

securities traded on it with the equities accounting for 97.9% while corporate debts

accounted for 1.1% and the three tiers of government has the rest.

2. How has the exchange contributed to the yearly capitalization in the

country?

Gbenga and Dianna D. said that the contribution has been very satisfactory.

According to SEC 1996 report, aggregate market capitalization of securities listed

on the exchange rose by N 105.5million (i.e58.5%); from N 189.3billion in 1995 to

N285.5billion in 1996.

According to SEC yearly report of 1996, the legislative and market reforms

undertaken between 1994 and 1995, to establish investment friendly environment

were instrumental to the increase in the market capitalization.

2.7.3 The Daily Stock Summary as at 13th

July, 2011

1st Tier Securities

Sector Company Name AGRICULTURE AGRO

–ALLIED:

FTN Cocoa Processor Plc Livestock Feeds Plc Okomu Oil Palm Plc Presco Plc Sector totals AUTOMOBILE AND

TYRE:

R T Briscoe PLC Sector Totals

BANKING:

Access Bank plc Afribank Nigeria plc Bank PHB PLC Diamond Bank plc Eco Bank plc Fidelity Bank plc Fin Bank plc First Bank of Nig. Plc First City Monu. Bank plc Guaranty Trust Bank plc Intercontinental Bank plc Oceanic Bank (Nig.) plc Skye Bank plc Spring Bank plc Stanbic IBTC Bank plc Sterling Bank plc UBA PLC Union Bank Nig. Plc Unity Bank plc

No of Deals 2 1 18 15 36

14 14

171 56 36 43 28 94 34

704 29

734 94 55

106 1

51 10

254 147

9

Quotation

(N)

0.50 0.50

16.10 8.00

2.09

6.37 0.95 0.71 5.00 2.80 2.23 0.57

11.55 6.33

13.93 1.05 1.21 7.05 0.85 9.58 1.54 5.25

2.350 0.87

Quantity Traded

103,165 20,000

724,700 353,790

1,201,655

155,348 155,348

6,484,804 1,738,923 3,455,323

755,910 371,946

3,372,995 1,450,080

18,138,511 1,378,000

22,341,042 4,195,884 1,650,779 2,850,553

11,789 1,396,785

414,756 8,419,494 6,947,962

132,499

Value Of Shares(N)

51,582.50 10,000.00

11,609,694.00 2,830,620.00

14,501,896.50

317,423.52 317,423.52

42,745460.99 1,623,421.95 2,491,442.45 3,767,254.44 1,071,520.66 7,553,043.80 839,218.14

211,174,746.82 8,754,810.00 313,934,877.41 4,275,474.07 2,014,726.17 18,673,895.53 9,549.09 13,417,429.15 639,024.24 44,490,361.77 16,335,032.87 114,170.16

Wema Bank plc Zenith Bank plc Sector Totals

BREWERIES:

Champion Brew. Plc Guinness Nig. Plc International Brew. Plc Nigerian Brew. Plc Sector Totals

BUILDING

MATERIALS:

Ashaka Cement plc CementCo.of North,Nig.plc Dangote Cement plc Larfarge Wapco plc Sector Totals CHEMICAL & PAINTS:

African Paints(Nig.)plc Berger paint plc Cap plc IPWA PLC Sector Totals

COMMERCIAL SERV:

Courteville investments plc Red Star Express plc Sector Totals

COMPUTER & OFFICE

EQUIPMENT:

Tripple Gee $ Co. plc Sector Totals CONGLOMERATES:

PZ Cussons Nig. Plc Trasnational Corp. Nig. Plc UACN PLC Unilever Nig. Plc Sector Totals

43 366

3,065

2

52 3

163 220

25 21 51 51

148

2 1

19 1

23

1

23 24

1 1

28 13 50 48

139

0.96 14.03

4.46 244.99

6.39 88.00

20.70 9.30 122.40 48.05

3.16 9.91 29.45 0.91

0.50 2.78

3.25

37.00 1.03 39.01 27.00

3,049,778 19,161,639

107,719,452

5,000

66,964 2,565

1,430,752 1,505,281

30,804

229,253 82,865

1,251,916 1,594,738

1,500 1,000

144,539 500

147,539

500,000 336,970 836,970

2,895 2,895

77,152 477,680 278,096 295,599

1,128,527

2,877,633.40 268,667,294.61 965,470,387.72

22,300.00 15,742,394.40 15,595.20 126,159,721.14 141,940,010.74

615,645.40 2,085,172.05 10,072,372.69 60,077,148.74 72,850,338.88

4,515.00 9,420.00 4,256,783.55 455.00 4,271,173.55

250,000.00 936,776.60

1,186,776.60

8,945.55 8,945.55

2,735,606.40 492,010.40 10,852,856.53 7,841,981.94 21,922,455.27

CONSTRUCTION:

Constain (WA) Plc Julius Berger Nig. Plc Sector Totals ENGINEERING TECH: Cutix plc Sector Totals

FOOD/BEVERAGES

AND TOBACCO:

7-Up bottling company, plc Cadbury Nigeria plc Dangote flour mills plc Dangote sugar refinery plc Flour mills Nig. Plc Honey well flour mill plc N Nig. Flour mills plc National salt Co. Nig. Plc Nestle Nig. Plc Nig. Bottling Co. plc Tantalizers plc Sector Totals

HEALTHCARE:

Evans Medical plc Fidson healthcare plc Glaxo Smithkline Nig. Plc May and Baker Nig. Plc Sector Totals HOTEL & TOURISM:

Capital Hotel plc Ikeja Hotel plc Sector Totals INDUSTRIAL DOMESTIC PRODUCTS: Alumaco Plc First Aluminum Nig. Plc Vitafoam Nig. Plc Sector Totals

16 15 31

5 5

23 50 32

100 65

9 3

22 36 28

2 370

1 9

16 5

31

2

14 16

1 1 20 22

2.81

56.30

2.30

45.00 17.80 16.00 12.00 81.00

4.25 24.70

4.99 400.01 41.50

0.50

1.20 1.80

23.11 3.80

5.14 1.46

7.75 0.50 6.00

160,500 98,845

259,345

109,767 109,767

87,385 434,612 224,987

1,033,705 2,852,411

24,560 3,032

875,602 18,535

161,212 172,000

5,888,041

40,000 47,850 321,763 38,600 448,213

56,000 2,996,510 3,052,510

4,394 6,000 711,755 722,149

450,346.08 5,287,252.50 5,737,598.58

246,312.06 246,312.06

3,973,011.11 7,691,575.61 3,599,792.00 12,211,980.02 230,157,290.25 99,383.60 72,838.00 4,383,592.89 7,447,325.76 6,786,071.00 86,000.00

276,508,860.00

45,600.00 85,902.00

7,509,358.76 146,186.00 7,787,046.76

287,840.00

4,374,904.60 4,662,744.60

34,053.50 3,000.00 4,274,995.55 4,312,049.05

INFO. AND COMM.

TECH:

Starcomms Plc Sector Totals INSURANCE:

Alico Insurance plc Continental Reinsurance plc Custodian and Allied Ins. Plc Equity Assurance plc Goldlink Insurance plc Guaranty Trust Assur. Plc Guinea Insurance Plc Intercontinental Wapic Ins. Int’l Energy Ins. Co. Plc Law union and Rock Ins. Plc N.E.M Ins. Co (Nig.) plc Niger Insurance Co. plc Oasis Insurance plc Prestige Assurance Co. plc Standard Alliance Ins. Plc Unic Insurance plc Universal Ins. Company plc Sector Totals

LEASING:

C and I Leasing plc Sector Totals MARITIME:

Japaul Oil & Maritime serv.plc Sector Totals MEDIA:

Daar Communications plc Sector Totals MORTGAGE COMP:

Resort savings & loans plc Union Homes Sav.&loan Plc Sector Totals

26 26

47 12

8 3

10 15

1 1 4

20 21 16 12

6 682

2 3

863

10 10

93 93

5 5

1 12 13

0.53

0.66 1.06 2.96 0.50 0.50 1.42 0.50 0.53 0.50 0.50 0.53 0.50 0.50 1.83 0.50 0.50 0.50

107

1.05

0.50

0.50 0.53

649,138 649,138

1,752,749 1,875,000 579,250 2,040,000 2,022,370 822,470 20,000 7,200 2,777,779 4,278,075 4,411,575 3,556,008 1,930,000 229,150 11,001,000 91,264 206,000 37,599,890

296,455 296,455

2,471,750 2,471,750

12,500 12,500

450,000 515,000 965,000

346,666.14 346,666.14

1,208,184.34 2,010,750.00 1,714,980.00 1,020,000.00 1,011,185.00 1,167,907.40 10,000.00 3,672.00 1,388,889.50 2,139,037.50 2,308,373.00 1,796,472.00 965,000.00 417,066.75 5,500,500.00 45,632.00 103,000.00 22,810,649.49

317,206.85 317,206.85

2,545,932.40 2,545,932.40

6,250.00 6,250.00

225,000.00 272,950.00 497,950.00

Other Fin. Institutions:

Crusader (Nig) plc Sector Totals PACKAGING:

Nig.Bags manuf. Co. plc Sector Totals

PETROLEUM:

Beco petroleum product plc Conoil plc Eterna Oil and Gas plc Forte Oil plc Mobil Oil (Nig) plc Mrs Oil Nigeria plc Oando plc Total Nigeria plc Sector Totals PRINTING

& PUBLISHING:

University Press plc Sector Totals REAL ESTATE:

UACN property Dev.Co plc Sector Totals ROAD

TRANSPORTATION:

Associated Bus CO. PLC Sector Totals THE FOREIGN

LISTINGS:

EcoBank Transnational Inc. Sector Totals Type Totals Grand Totals

2 2

447 447

7

26 8 6

18 2

129 15

211

13 13

27 27

2 2

18 18

5,922

5,922

0.50

2.70

0.50 34.30 4.30 19.28 157.50 70.75 40.80 195.50

5.00

20.15

0.57

14.43

500,000 500,000

2,684,233 2,684,233

37,822 38,220 70,891 3,582 4,003 500 455,789 10,346 621,153

102,030 102,030

649,207 649,207

23,500 23,500

218,870 218,870

172,114,926

172,114,926

250,000.00 250,000.00

6,936,585.06 6,936,585.06

18,911.00

1,253,797.80 289,944.19 69,060.96 603,012.71 33,610.00 18,273,429.63 2,068,232.25 22,609,998.54

503,451.00 503,451.00

12,875,706.00 12,875,706.00

12,925.00 12,925.00

3,158,294.10 3,158,294.10

1,598,686,411.60

1,598,686,411.60

As one can see from the summary above, the banking sub-sector led on the

performance chart with 107.71 million shares valued at N965.47 million

exchanged in 3,065 deals.

The volume recorded in the sub-sector was driven by transaction in the

shares of Guaranty Trust Bank, Zenith Bank, First Bank, UBA and Union Bank.

The total volume of 75.00 million shares valued at N854.60 million traded in the

shares of five stocks accounted for 43.58 per cent of the entire market volume and

their value represented 53.46 per cent of the market’s value.

Following on the performance chart was the Insurance sub-sector with

37.599 million shares worth N22.810 million traded in 863 deals while the Food

Beverages & Tobacco sub-sector ranked third with 5.888 million shares valued at

N276.508 million exchanged by investors in 370 deals.

However, on top of the gainers table were Capital Hotel, Bagco, Prestige,

GT Assurance and Skye Bank. Each gained 24 kobo, 12 kobo, 8 kobo, 6 kobo and

29 kobo to close at N5.14, N2.70, N1.83, N1.42 and N7.05 respectively.

Conversely, CAP, Glaxosmith, FCMB, Sterling Bank and Access Bank led

the losers. Each lost 155 kobo, 121 kobo, 33 kobo, 8 kobo and 33 kobo per share

from N31.00, N24.32, N6.66, N1.62 and N6.70 in that order.

2.8.4 Problems Associated with the Exchange

Despite its enormous contribution in the economic development of the

country, the Nigerian stock exchange market still has some problems bedeviling it.

Among these unresolved issues are:

1. Lack of disclosure of accurate information: some firms in the exchange still

don’t disclose accurate information about their financial stands. There is no

doubt that improvement in this area is very important to ensure guided and

informed action of investors and also the protection of the potential

investors’ interest. Disclosure of accurate information by companies will go

a long way in increasing the confidence of both local and foreign investors

in the market.

2. Low level of awareness about the market: according to Nkem Ossai (1997,

23), there is low level of awareness about the market. He said, it is only

eliciting among the tiny few that are aware of its existence.

3. Speaking further on the above, R. O Yusuf (2003), posited that for

Nigerians both at home and abroad to invest more in stocks, the authorities

of the market should embark on public enlightenment and education of the

investing public to take advantage of its remote trading system.

4. Lack of interest in the market: Okigbo tells us in his book that since other

outlets exist, firms tend not to bother with the exchange especially the

government stocks which have the lowest yield.

5. Existence of technical and share valuation/price problem: according to

Nkem Ossai (1997, 25), stock exchange market as Jankara market, by most

technical yardsticks, has virtually collapsed. We risk playing into the hands

of those currently paddling the more noxious idea of a government stock

exchange.

6. Unstable political cum socio-economic environment: the instability that had

bedeviled our political cum socio-economic environment never helped

matters as investors are always skeptical to invest in an unstable

environment.

7. Uneven distribution of wealth: the creation of a stock exchange market has

increased uneven distribution of wealth. Dealings on the exchange can only

be undertaken by wealthy people thereby widening the gap between the rich

and the poor who cannot afford to go through the exchange.

8. Mono-sector driven tendency: according to the analysis of the Daily Sun of

Thursday, July 14, 2011, the banking sub-sector was leading the

performance chart. A situation where the banking sub-sector continues and

remains the most active in the market is not good for the economy. The

analysis showed that the banking sub-sector was still leading in terms of

volumes of shares and market capitalization.

9. Lack of Government patronage: for some times now, the government bonds

have been dominant. Mr. Akingbola E.(2002,32) suggested the reactivation

of the Government Bond Market, adding that the success of the market

would depend significantly on the level of official commitment particularly

in terms of returns.

10. Lack of public confidence: according to Mr. Oladipo Williams, immediate

past president of Chartered Institute of Stockbrokers (CIS), there is

considerable loss of confidence by the generality of investors which

invariably causes low patronage in the market. There is therefore an urgent

need for restoration of public confidence which can only be built by

engendering accountability and transparency.

REFERENCES

Peter S. Rose (1994), “Money and Capital Market: financial Institution and Investments in Global Places”. New York, Addison Wesley. pp 628-635.

Central Bank of Nigeria Statistical Bulletin: vol. 6 No.1 of June, 1995. Emekekwue, P. (1996), “Second Revised Version of Corporate Financial

Management”. Enugu: African Bureau of Educational Sciences. Armstrong F.E (1993), the Capital Market Operations, Enugu. (A Seminar Paper

Presented in UNEC on 21st march, 1993). Alile and Anao (1986), “The Nigerian Stock Exchange Market in Operation”

Lagos: Jeromalarho and Associates Ltd. Onyiuke Ndi Okereke J.(2010), “Overview of the Nigerian Capital Market

”.Enugu. A paper presented at a seminar held at UNEC in June, 2010.

The Guardian Newspapers: August 8, 2010 pg. 14.

Agbana G. (2009), Footpath to Capital Market Competitiveness Engages Stakeholders” The Guardian, September 19, 2009. Pg. 14.

Hulbert R. C (2008), Investment Opportunities in Times of Financial Crisis:

The Surround Struck Journal 2008. Ossai N. (1997), Stock Exchange as Jankara market: October 23 of Guardian

Newspapers. Okigbo P. N. C (1981: 90), “Nigerian Financial System, Structure and Growth”

Essex, U.K: Long Man Group Ltd. The Daily Sun Newspaper, July 14, 2011. htt://www.nigeriabusinessinfo.com|capitalmarket.htm//structure.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter will focus on the procedures for collection and analysis of data.

Having reviewed the related literature on the impact of the capital market on the

Nigerian economy with emphasis on the role of the Nigerian Stock Exchange, the

researcher’s attention will now move to the methods of data collection and analysis

called methodology.

Research methodology according to Baridman (1990:20) should wage a

detailed statement of methods used in collection of data; why those methods were

chosen and not others.

The research work is a case study in which the Nigerian stock exchange was

singled out as a representative of the capital market. The choice of the stock

exchange as the case study is justified by the singular, critical and unique position

of it in the development of the real financial and socio-economic structure of the

economy.

3.2 RESEARCH DESIGN

The researcher employed various methods and procedures to achieve the

objectives of the research. The researcher obtained information from both primary

sources and secondary sources. Primary sources include oral interviews, direct

observation and administration of questionnaires. Secondary sources which are the

desk research include materials obtained from journals, newspapers, annual

reports, magazines, seminar papers, unpublished thesis, World Wide Web and

electronic media.

The data collated were placed into useable form through editing, tabulating

and analysis. In editing, non-relevant data were discarded and the relevant data

were tabulated so that statistics could be developed from them. The data were

subjected to analysis and the research formed interpretation from the result.

3.3 SOURCES OF DATA

As mentioned above, the researcher made use of both primary and secondary

sources of data for this study.

3.3.1 Primary Data

Primary data were gathered by the researcher through personal observation,

oral interview and administration of questionnaire. The questionnaire contained

both structured and unstructured questions to probe into the research problem.

3.3.2 Secondary Data

Secondary data also known as desk research was used. The researcher also

got information through secondary data. And such information was got from the

Newspapers, Internet, Books, Annual reports, Seminar papers, Journals, press

released by the Stock Exchange Commission, Central Banks of Nigeria, Nigerian

Securities and Exchange Commission and other vital documents regarding the

Nigerian stock market.

3.4 METHOD OF DATA COLLECTION

This refers to the research instruments used by the researcher to collect

whatever data was needed. The research instruments used in this work include:

questionnaire, interview schedule and desk research.

3.4.1 Reasons for using the Above Mentioned Methods

The questionnaire permits for wider coverage for minimum expenses. It

researches to people that would have been hard to contact especially since most of

them were sent through E-mail to respondents. It also afforded the respondents

more sufficient situations in which to check options.

The interview schedule was to complement the questionnaire and help to

secure information the researcher found useful in completing the research work.

Desk research enabled the researcher to know the actual situation of events

by comparing figures of past with the present so as bring a more accurate

generalization.

3.5 DETERMINATION OF POPULATION SIZE

In determining the population size, the researcher has to adopt the stratified

deliberate sampling method. This method was chosen because of the

heterogeneous nature of the population which includes staff of quoted companies,

stock brokers and general investors.

In effect, it is not doable to collect information from all doable respondents

hence stock broking firms were chosen to represent the registered dealing members

in the NSE while individual’s investors (shareholders) were chosen to represent

other investors.

3.6 SAMPLE PROCEDURE

In the process of carrying out research of this sort, a comprehensive

information that will help one come up with a concrete result with relevant

references to the study has to be built up. To this end, a decision has to be

prefabricated on whether such information will surface from all the sample

population. In respect to the study, a sample of the population was adopted to

enable the researcher swiftly get at them.

Also, interviews were conducted, categorically with officials of stock

broking firms and few individual investors under the population size.

Questionnaires were distributed to the sample population. With that, the

researcher gained quicker response.

3.7 METHODS OF ADMINISTERING QUESTIONNAIRES

In administering the questionnaires, hand to hand approach has to be used.

The researcher adopted this method for quicker response and to ensure prompt

return and accountability.

Equally, some questionnaires were e-mailed to respondents due to their

location and importance of their contribution to this research. For instance, one

hundred (100) questionnaires representing one hundred percent (100%) of

distributed questionnaires, eight five (85) questionnaires were returned and

received representing eight five (85%) of the distributed questionnaire which

evidently is a favorable response rating.

3.8 DECISION RULE

The decision rule states that data collected from the secondary sources will

be affected to the “Impact of the Capital Market on the Nigerian Economy with

Emphasis on the Roles of the Nigerian Stock Exchange”.

In view of the decision rule of data collected through questionnaire

responses and individualized interview questions, various data were presented and

analyzed.

Some of the decision rule techniques applied are as follows:

RECORDS: Many records are maintained for the past and ongoing activities of

the Nigerian Stock Exchange and these often wage data for analysis.

TABULATION: The tables for apiece /group of respondents were separately

presented and this enables simple assessment of the majority response to apiece

research question.

PERCENTAGE (module response): responses to questionnaires were decided on

percentage basis.

REFERENCES

Baridman D. M (1990) “Research Methods in Administrative Sciences” Bark publishers, Port Harcourt; 2nd Edition pg. 20.

Ezejunlie C and Ogono (1990) “Basic Principles in Managing Research

Project” Onitsha, Africana Publishers. Pg. 30- 32. Ikeagwu E. K (1998) “Groundwork of Research Methods and Procedures”

Enugu: IDS Publishers.

CHAPTER FOUR

PRESENTATION AND ANALYSIS

4.1 INTRODUCTION

This chapter would be used to present and analyze the various tools

employed by the researcher to help it gather information regarding the subject

matter. The tools as mentioned earlier are:

(i) Questionnaire

(ii) Interview

(iii) Direct observation.

1. Questionnaire: The data gathered through the questionnaire will be used to

test the research question.

2. Interview: The data gathered through this invaluable tool is further used to

authenticate the premise of the research questions.

3. Direct Observation: This is further employed to produce data which depicts

clearly the true and unbiased state of the Nigeria stock exchange.

To further authenticate the findings drawn from the aforementioned tools, a

comparative analysis of the Nigeria stock exchange and other emerging stock

markets in the world may be carried out when necessary.

Questionnaire and Collection

In the analysis of questionnaire, the sample size is 45. This is restricted to

random sampling technique. Questionnaires were distributed among different

groups irrespective of their occupation. A copy of the questionnaire is attached as

appendix. Each questionnaire contains 20 questions. Out of the 45 questionnaires

administered, 5 persons defaulted and could not submit theirs. The researcher then

worked with 40.

Question 1 and 2 in the questionnaire are based on sex and education. As

such, the main analysis of this study will start from question 3.

4.2 PRESENTATION AND ANALYSIS OF RESPONSES FROM

QUESTIONNAIRE

The response from the respondents was quite encouraging as most of them

really bare their mind and made some invaluable comment on the economy in

general. I therefore wish to present the responses in tabular from for the purpose of

clarity and comparison.

Item 1

Table 4.1: Identify your Sex?

Options No of respondents Percentage (%)

Male 36 90%

Female 4 10%

Total 40 100%

Comment: Out of the forty respondents, 36 are males while 4 are females

representing 90% and 10% respectively. This can also be analyzed in a bar chart

thus:

0

20

40

60

80

100

A B

ITEM 2

Table 4.2: What is your Occupation?

Options No of Respondents Percentage %

Civil/Public Servant (A) 10 25

Businessmen (B) 20 50

Bankers Etc (C) 10 25

Total 40 100

Represented in Bar chart thus

Comment: From the foregoing presentation, one can see that the sample size is

made up of 10 bankers. One would assume that this group is well disposed to make

an informed decisions.

0

10

20

40

60

80

100

A B C

ITEM 3

Table 4.3 Are you Aware of the Existence of the Nigeria Stock Exchange?


Yes (A) 38 95%

No (B) 2 5%

Total 40 100

The above can be represented thus on a bar chart.

Comment: One can see clearly that 38 of the sample are aware of the Nigerian

stock exchange while only 2 are not aware representing 95% and 5% respectively.

0

20

40

60

80

100

A B

Options

ITEM 4

Table 4.4: How Familiar are you with the Operations of the Nigerian Stock

Exchange.


Yes familiar (A) 22 55%

Fairly familiar (B) 16 40%

Not familiar (C) 2 5%

Total 40 100

This can be represented in a bar chart thus:

From the above table and chart, one could vividly see that 22 of the

respondents representing 55% are very familiar with the Nigerian stock exchange

while 16 who are fairly familiar with the operations of the exchange represent 40%

and 2 persons who are not familiar represent 5%.

0

10

20

30

40

50

60

A B C

Options

ITEM 5

Table 4.5: Are you Aware of the Aims and Functions of the Nigeria Stock

Exchange?


(A) Yes 36 90%

(B) No 4 10%

Total 40 100

This can be represented in a bar chart as thus:

From the above table and chart, 90% of the sample population are aware of

the aims and functions of the stock exchange. The high percentage depicts the

literacy level of the sample population.

0

20

40

60

80

100

A B

ITEM 6

Table 4.6: If No 5 is yes, do you make use of the exchange?


(A) Yes 8 20%

(B) No 25 62.5%

(C) No response 7 17.5%

Total 40 100

This can be represented in the bar chart as thus:

From the above table and chart, only 8 people out f 36 that are aware of the

exchange actually patronize it representing 20% of the population. Meanwhile, 7

persons did not respond to this question while 25 said that they do not have

anything to do with the exchange representing 62.5%. This is not a healthy

development for Nigerian economy.

0

10

20

30

40

50

60

70

A B C

ITEM 7

Table 4.7: Where do you (Corporation, Individuals and Government) raise

your Fund?


(A) Banks 15 37.5%

(B) Friends 7 17.5%

(C) Family Members 10 25%

(D) NSE 8 20%

Total 40 100%

This can be represented in a bar chart

From the above table and chart, it could be understood that the highest

percentage of the population source their funds from the banks. While other

options like family, NSE and friends count for minor percentages of 25%, 20% and

17.5% respectively, the bank account for the highest percentage of 37.5%. This

shows clearly that Nigerians do not patronize the stock market.

0

10

20

30

40

A B C D

ITEM 8

Table 4.8: Why Prefer the Bank as an Outlet?


(A) Convenience 20 50%

(B) Cost Effective 17 42.5%

(C) Only outlet known 3 7.5%

Total 40 100

The above information can be represented in a bar chart thus:

From the above table and chart convenience is the most influencing factor

and basic consideration given when choosing where to raise or even invest funds.

Critically speaking, the time factor is a crucial issue worth considering before

investing or acquiring funds.

0

10

20

30

40

50

60

A B C

Cost effectiveness which takes the second rating is another significant issue

in the acquisition of fund. Attention is higher placed on cost when considering

sources of fund as no investor will want to source funds where the cost will

outweigh the expected return on investment.

ITEM 9

Table 4.9: Has the Nigerian Stock Exchange contributed significantly to the

Development of the Economy?


(A) Yes 32 80%

(B) No 8 20%

Total 40 100

The above table can be represented in bar chart thus:

From the above table and chart, one can see vividly that majority (32) of the

respondents agree that the Nigeria stock exchange has contributed to the socio-

0

20

40

60

80

100

A B

economic status of the country while only 8 persons representing 20% disagreed

with the assertion. This might be partly due to the lack of awareness of the role the

exchange has played and continue to play on the socio-economic development of

the country.

ITEM 10

Table 4.10: Are you satisfied with the level of development in the stock

exchange market?


(A) Yes 10 25%

(B) No 30 75%

Total 40 100


From the above table and chart, it is clearly seen that more than half the

sample size are not satisfied with the level of development in the market while

0

20

40

60

80

A B

others were satisfied. Those who were not satisfied were further asked to give

reasons why they are not satisfied with the level of development in the market

hence the question.

ITEM 11

What are your reasons for dissatisfaction with the level of development in

the market? The 30 people who were not satisfied with the level of development in

the market hinged their position in the following points:

(a) Information: They all agreed that the information made available to the

public by the Nigerian Stock Exchange were either too scanty, technical and

do not aid potential investor to make informed decision.

(b) Pricing Policy: They also complained that share prices in the market is most

times determined by personal feelings and goodwill instead of allowing the

forces of demand and supply to take its course.

(c) Returns in form of Dividends: Investors/respondents frowned seriously at

the method adopted by these companies to compensate investors for their

investment. They complained that a situation where investors do not receive

dividends for a number of years on their investments is not encouraging.

Most times, the investors are not informed as to why they are not entitled to

dividends over years. They therefore challenged the stock exchange to do

more to create the confidence that would attract the needed public patronage.

(d) Fraudulent disclosure of financial data by companies quoted at the

exchange: The respondents complained they cannot even repose confidence

on some companies quoted at the exchange as most of them do window

dressing and do not disclose to potential investors the real financial status.

(e) Corruption: They also complained that the exchange is also bedeviled by

the corruption wave in the country. The recent imbroglio in the Nigerian

stock exchange is a case in point. And a situation where touts parade

themselves as brokers and speculators for different companies has not

helped matters. They therefore called for total sanitization of socio-

economic system before they can invest their hard earned funds or patronize

the Nigeria Stock Exchange Market.

(f) Lack of Aggressive Awareness Campaign: They also challenged the

exchange to embark on aggressive campaign so as to enlighten people in

their activities and make more impact on the lives of Nigerians. They said

that the development is hindered because the average Nigerian is not

informed of what he could gain from the stock exchange market. Lack of

this grass-root campaign has in no mean way hindered the development

efforts of the Nigerian Stock Exchange over the years.

ITEM 12

Table 4.12: Can the problems be overcome in the near future? The

respondents all emphasized that the above mentioned problems can be overcome

if...

(a) High level of confidence is built in the investing public by the Nigerian

Stock Exchange.

(b) Information dissemination is taken seriously

(c) Corruption is eschewed.

(d) Nigerians are made to understand the short and even long-term gains of

patronizing the market.

(e) Issue of disclosure is taken seriously by eschewing every form of

window dressing of accounting and other financial information by

companies.

(f) Princes are allowed to be determined by the forces of demand and

supply.

Question 13

Table 4.11: Are you satisfied with the pricing policy?


(A) Yes 18 45%

(B) No 22 55%

Total 40 100

It could be represented in a bar chart thus:

From the above table and chart, 18 persons out of the 40 representing 45%

were satisfied with the pricing policy while 22 representing 55% are not satisfied.

Question 14

0

10

20

30

40

50

60

A B

If your answer to question 13 is No, what are your reasons?

The respondent agreed that the pricing policy is made arbitrarily on the

ground of feelings and reputation of the company and not on the basis of demand

and supply.

Question 15

Are you aware of the introduction of a computerized system of clearing

settlement and delivery of trade transaction, the (CSCS)?

Table 4.12


(A) Yes 25 62.5%

(B) No 15 37.5%

Total 40 100


0

10

20

30

40

50

60

70

A B

Options

From the foregoing table and chart, 25 out of the 40 respondents are aware

of the computerized system of clearing, settlement and delivering of trade

transaction (CSCS) while 15 of the respondents are not even aware of this new

mode of transactions.

ITEM NO 16

Table 4.13: What is the movement of Share Prices since the

Introduction of Central Security Clearing System?


(A) Stable - -

(B) Unstable - -

(C) The Same 40 100%

Total 40 100%

0

20

40

60

80

100

120

A B

From the above, it demonstrates the unanimous acceptance by the

respondents that the share prices cannot be influenced by the introduction of

central security clearing system. It can only be influenced by demand and prices in

the market.

QUESTION 17

Are you aware of the introduction of the Automated Trading System

(ATS), through which stockbrokers can trade from their offices and homes?

Table 4.14


(A) Yes 14 35%

(B) No 26 65%

Total 40 100%


0

10

20

30

40

50

60

70

A B

Options

From the above table and chart, one can see that only 35% of the sample size

is aware of the ATS system while 65% are not aware of it.

QUESTION 18

If your answer to 17 is yes, do you think the Automated Training

System (ATS) will enhance the operations of the Stock Exchange?

Table 4.15


A. Yes 40 100%

B. No 0 0%

Total 40 100%

This can be represented in a bar chart thus:

From the above table and chart, they all agreed that the system will enhance

the operations of the Stock Exchange as it will save time and even cost.

0

20

40

60

80

100

120

A B

QUESTION 19

How can you assess the impact of information technology (internet services)

vis-à-vis the operations of the Nigeria Stock Exchange?

Table 4.16


(A) Very satisfactory 12 30%

(B) Satisfactory 24 60%

(C) Not satisfactory 4 10%

Total 40 100%

The above table can be represented in a bar chart thus:

From the above table and chart presentation, one can see vividly that the use

of information technology via the internet has made a lot of positive impacts on

operations of the Nigeria Stock Exchange. This is because 90% of the total

0

10

20

30

40

50

60

70

A B C

Options

population is satisfied with the use of internet to transact business and access the

daily operations of the Nigeria Stock Exchange. It is however, pertinent to say that

the use of the internet service is only available to the educated and privileged few

in the society.

Question 20

Do you feel that the creation of the market has necessarily impacted

positively on the socio-economic development of Nigeria?


(A) Yes 40 100%

(B) No - -

Total 40 100%

Represented in bar chart thus:

0

20

40

60

80

100

120

A B

Options

From the above table and chart, it can be seen that the entire sample

population are of the opinion that the creation of the Stock Exchange Market has

impacted positively on the socio-economic development of Nigeria. This, it has

done by taking some necessary though hard steps since inception to improve on the

material welfare, accelerating rapid socio-economic development needed to put the

country’s market into international standard.

4.3 ANALYSIS OF INTERVIEW

1. Nigeria Stock Market is under developed.

2. Confidence in the market’s future development.

Here, an attempt shall be made to analyze the extract of the interview

conducted on some people on the above mentioned points. Speaking on the stock

market level of development and confidence in the market’s future development

Mr. Sunday Nwosu, one of the operators stated that a situation where only about

12 million independent shareholders patronize the stock market is in sharp contrast

and leaves much to be desired when compared to United States where 88 million

Americans were shareholders. That means that multiples of them depends on the

capital market for their livelihood. He disclosed that the enlightenment campaign

of the association and the BPE on the benefits of investing in the capital market

was what helped to shore up the number.

On the future prospects of the market and level of confidence, he affirmed

that the Nigerian capital market has the potential of becoming the best emerging

market in sub-saharan Africa.

Expressing optimism, Nwosu declared that in no distant time, our stock

market would be like the developed market of the world. He stated that with the

relentless efforts of the BPE and on-going reforms of the Stock Exchange

Commission, Nigerians are being sensitized on the gains of investing in stocks

which many people do not know about.

A second interviewee, Mr. S. Nwosu a Banker stated that the level of

development existing at the stock exchange is a bit impressive based on

information at the stock exchange but pointed out that the capitalization of the

stock exchange was poor when compared to international standard.

He spoke on the factors that have held the Nigerian stock market down. He

made mention of the instability of the socio-political environment. For example,

during the last Nigeria labour congress strike, one could see the impact on the

operations of the stock market thus:

24th July, 2003 (During strike)

No of Stocks Traded - 19, 206, 552

Value (N) - 226, 224, 510.54

When compared to July 26, 2003 (After strike)

No of stock traded - 27,909, 199

Value in (N) - 669, 658, 450.42.

The incessant and unstable political and socio-economic and industrial

disharmony also impeded the operations of the Nigerian stock market.

A third interviewee, Mr. S. Nkwor lamented on the high cost of raising

funds in the market. He said that investors can only be attracted to the market if

cost of raising funds in the capital market is cheaper than in the money market. He

appealed to both the Securities and Exchange Commission (SEC) and Nigerian

Stock Exchange (NSE) to (as a matter of urgency) reduce the cost of sourcing

funds to enable them attract more companies and investors to the market. With

regard to the pricing policy, he stated that the pricing was carried out based on

feelings rather than on the forces of demand and supply. He contented that the

pricing policy was not weighed by the proper procedure but by influence of the

people. He, therefore, suggested that the pricing policy should be allowed to be

determined by the forces of demand and supply, after consideration of the earning

capacities of the company and not on sentiments.

Communication: He believed that with the introduction of over the counter

market and the use of internet and other information technology gadgets the stock

exchange is titling towards international standard.

Confidence in the Market’s Future Development: On the above point, Mr.

Nkwor stated that future prospects of the exchange is bright but emphasized that

the operators engender accountability, transparency and efficiency as this will help

install confidence in the market future development. He therefore proposed that the

following points should be seriously reviewed to ensure efficiency and attract

public confidence in the stock market. They include:

1. Cost of Registration

2. Information made available to the public

3. Uneven Distribution of National Income

1. Cost of Registration: Although the cost of registration has been reduced to

enable more companies obtain quotations in the stock exchange. The cost is

still high compared to what is obtainable in the second-tier security market.

This high cost has excluded small companies and other individuals from

operating in the market. He also talked about anti-trust which prevents

individuals from using privilege information in the market.

2. Information Made Available to the Public: On this he stated that

information made available to the public is scanty and in a language that are

technical to understand.

3. Uneven Distribution of National Income: The Market is made open to

some privilege individuals. He concluded by saying that the exchange has a

bright prospect in accelerating rapid economic development and well being

of the people.

Contributing, Uche Ezechukwu in business day, August 18, 2010, pointed

out that the level of development at the Nigeria capital market scene is exacerbated

for reasons that include:

1. Absence of a strong and well funded regulator;

2. A socio-economic environment that extols wealth no matter however is

made;

3. Suffocating competition that encourages unorthodox practice as firms try to

stay afloat and ahead of competition;

4. Weak legal framework;

5. Weak internal control environment as a result of employment policies that

place less emphasis on merit and integrity;

6. Weak audit committees as a result of membership that is largely financially

illiterate and ill-motivated because of absence of remuneration for services

rendered;

7. Weak external audit function, partly as a result of few bad eggs in the

possession and partly as a result of letters place on independence of the

auditors in actual practice.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 SUMMARY OF FINDINGS

From the data collected and analyzed, the following parts can be noted:

1. A good number of population were not satisfied with activities of the

exchange due to poor information dissemination thereby leading to low

patronage and apathy. And when they are disseminated, they are either too

technical or scanty for the ordinary person to comprehend.

2. The participators are the few rich corporations and individuals who can

afford to pay for the huge cost usually associated with the listing and other

transaction in the exchange.

3. The public lacked confidence in the activities of the exchange as those who

have invested in shares and other stocks for years could not boast of

receiving any reasonable returns on their said investments.

4. Pricing policy is weighed by feelings and reputation of the company and not

on the basis of demand and supply.

5. The exchange was also noticed to be monotonous in nature as the stocks of

the banking sub-sector for years dominated transactions on the floor of the

exchange.

6. The people have not appreciated so well the roles and functions of the

exchange in economic development and what they stand to gain from

patronizing the exchange.

7. Most people like to either raise funds or invest through the banks due to the

rigors involved in going through the stock market.

5.2 CONCLUSION

It can be concluded that a good number of people do not make use of the

exchange due to the following reasons:

1. Ignorance is a major impediment on the part of individuals and rigorous

quotation requirements at the exchange.

2. Crisis of integrity that rocked the Market as a result of the imbroglio in

the Nigerian stock exchange (NSE) has had far reaching effect.

3. Existence of other institutions which seems more convenient for fund

seekers than the exchange.

In summation, despite the numerous problems confronting the exchange, it

is pertinent to affirm that the market has bright future prospects and would emerge

the best in sub-Sahara Africa, if the proposed steps are strictly adhered to.

5.3 RECOMMENDATIONS

From the above findings, the following recommendations can be made:

1. The cost and stringent requirement involved in listing and registration

should be drastically reduced to attract more people to the market.

2. The management of the Stock Exchange should intensify its efforts to

enlighten the people especially at the grassroots on the numerous gains

they stand to get from patronizing the Exchange.

3. The current over the counter market (OTC) transactions should be

encouraged.

4. Transparency and accountability should be engendered to be the watch-

word and both the management and operators of the exchange should

conform to this order. Every form of window dressing of the financial

statements by companies should be eschewed.

5. The exchange should be professionalized and should not be an all

comer’s affairs.

6. Reforms that should endear foreigners and citizens as well should be

introduced immediately.

7. The pricing policy should be based on the forces of demand and supply

mechanism rather than on sentiments and reputation of companies.

8. Information made available should be more explicit to allow for informed

decision.

9. Awareness regarding the impact of the market on economic development

should be encouraged by organizing seminars, symposium etc and by

employing the mass media to accelerate this campaign.

10. The government should ensure some level of political stability to enable

investors both foreigners and local investors patronize the stock market.

The Nigerian stock exchange market is a very important vehicle that could

enhance the much-desired socio-economic development of this country. And this

feat could only be achieved by hiring the right people, technology and stable socio-

political environment.

BIBLIOGRAPHY

Adeojo and Wole Adewunmi (1982), “Banking and Finance in Nigeria”, Graham Burni Pp. 25.

Adekanye F. (1986), “The Elements of Banking in Nigeria”, Graham Burn: Pp. 25. Alile, H. and Anoa A. L. (986), “The Nigerian Stock Market in Operation”, Lagos,

Jeromalarho and Associates Pp. 14. Alile H. I. “The Impact of Nigeria Stock Exchange in the Economic Development

of Nigeria”, A Paper Presented at a Seminar Organized by the Lagos Chamber of Commerce. Vanguard Newspapers (1988) Pp. 28.

Agbana G. (2009), “Foot Path to Capital Market Competitiveness Engages

Stakeholders”. The Guardian Newspapers, Sept 19, 2009 P. 14. Central Bank of Nigeria Statistical Bulletin (1995) Volume 6 No. 1 (June). Emekekwue, Patrick (1996:25), “Corporate Financial Management” Enugu.

African Bureau of Education Sciences. Falegan, S. B. (1981:241), “Nigeria Financial System” Lagos. Okigbo P. N. C. (1981:90), “Nigeria Financial System Structure and Growth”

Essex U. K. Longman Group Ltd. Onyiuke Ndi Okereke J. (2010), “Overview of the Nigerian Capital Market” A

Seminar Paper Presented in UNEC, Enugu. Onosede, G. O. (1983) “Developing an Active Capital Market”, Journal of the

Stock Exchange Commission. Pp. 50. The Nigeria Stock Exchange Fact Book. 2002, Pp. 15 Vol. 14. http://www.nigeriabusinessinfo.com/cbn.htm. http://www.nigeriabusienssinfo.com/capitalmarket.htmlstructure. http://www.nigeriabusinesinfo.com/sec.htm.

SAMPLE QUESTIONNAIRE

School of Postgraduate Studies Faculty of Business Administration Department of Accountancy University of Nigeria Enugu Campus. 10th May, 2011.

Dear Respondent,

A PLEA FOR QUESTIONNAIRE RESPONSE

I am an MBA student of the above named institution carrying out a research

on the topic “The Impact of The Capital Market on the Nigerian Economy with

emphasis on the Roles of the Nigerian Stock Exchange”.

This questionnaire is designed to elicit information on the topic under study.

It is purely an academic exercise and any information disclosed will be treated with

strict confidentiality.

Thanks for your most anticipated co-operation and remain blessed!

Mbah Emannuel C.

Researcher

QUESTIONNAIRE FORM INSTRUCTION

In each of the questions below, please tick (X) in the box beside the option

you consider most appropriate against each question.

1. Identify your Sex:

(a) Male [ ] (b) Female [ ]

2. What is your occupation?

(a) Civil/Public Servant [ ]

(b) Businessmen [ ]

(c) Banker [ ]

3. Are you aware of the existence of the Nigerian Stock Exchange?

(a) Yes [ ] (b) No [ ]

4. How familiar are you with the operations of the Nigerian Stock Exchange?

(a) Very familiar [ ] (b) Fairly Familiar [ ]

(c) Not Familiar [ ]

5. Are you aware of the aims and functions of the Nigerian Stock Exchange?

(a) Yes [ ] (b) No [ ]

6. If Number 5 is Yes, do you make use of the Exchange?

(a) Yes [ ] (b) No [ ]

7. Where do you raise your funds?

(a) Banks [ ] (b) Friends [ ]

(c) Family Members [ ] (d) NSE [ ]

8. If your answer is banks, why do you prefer this option?

(a) Convenience [ ] (b) Cost Effective [ ]

(c) Only outlet known [ ].

9. Has the Nigeria Stock Exchange contributed significantly to the

development of the economy?

(a) Yes [ ] (b) No [ ]

10. Are you satisfied with the level of development in this market?

(a) Yes [ ] (b) No [ ]

11. What are your reasons for dissatisfaction if your Number 10 option is No?

----------------------------------------------------------------------

12. Can these problems be overcome in the near future?

(a) Yes [ ] (b) No [ ]

13. Are you satisfied with the pricing policy existing at the exchange?

(a) Yes [ ] (b) No [ ]

14. If your answer to Number 13 is No, what are your reasons?

----------------------------------------------------------------------

15. Are you aware of the introduction of the computerized system of clearing

settlement and delivery of trade transaction (CSCS)?

(a) Yes [ ] (b) No [ ]

16. What is the movement of share price like since the introduction of central

security clearing system?

(a) Stable [ ] (b) Unstable [ ] (c) the same { }

17. Are you aware of the introduction of the Automated Training System (ATS)

under which stockbrokers can trade from their offices and home?

(a) Yes [ ] (b) No [ ]

18. If your response to Number 17 is Yes, do you think the Automated Trading

System (ATS) is beneficial to the Stock Exchange?

(a) Yes [ ] (b) No [ ]

19. How has the imbroglio in the Nigerian Stock Exchange impacted on the

capital market?

(a) Negative [ ] (b) Positively [ ] (c) Both [ ]

20. How can you assess the impact of information technology (internet services

stock on the operations of the Nigeria Stock Exchange?

(a) Very Satisfactory [ ] (b) Satisfactory [ ]

(c) Not satisfactorily [ ]

21. Do you feel that the creation of the capital market has necessarily impacted

positively on the socio-economic development of Nigeria?

(a) Yes [ ] (b) No [ ]

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THE IMPACT OF CAPITAL MARKET ON THE NIGERIAN … - THE WHOLE PROJE… · PG/MBA/ 09/53698. BEING A PROJECT RESEARCH SUBMITTED IN PARTIAL ... award of Master of Business Administration