Impact of stock exchange market on Nigeria economic growth 1981-2015 PDF. Download the full material from chapter one to five with reference and abstract. Stock market is an integral part of the financial system that provides an efficient delivery mechanism for mobilization and allocation, management and distribution of long-term funds (Alile and Anao 1986).
1.1 Background to the Study
Stock market is an integral part of the financial system that provides an efficient delivery mechanism for mobilization and allocation, management and distribution of long-term funds (Alile and Anao 1986). It facilitates the flow of funds from the area of surplus funds to the area of needs (Abiy and Guotai, 2014); canalization of funds from those who desire to invest to those who need it for economic endeavours. Apart from judicious mobilization of idle savings into productive use; the stock market creates an avenue for foreign investment and the influx of foreign capital for developing projects that increase the welfare of citizens.
It is a well-known fact that the rate of economic growth is one aspect of macroeconomics that calls the interest of virtually all the economies of the world both advanced and developing economics. Appropriately, rapid economic growth is one major economic aim or objective that every nation including Nigeria pursues with enthusiasms or vigor. Some revered economists insisted that the low rate of economic growth has been attributed to some identified factors, such as poverty, and low capital formation that is, lack of capital for investment (udabah, 2004).
Given the importance of high productivity in the industrial sector in boosting economic growth and the standards of living of the people, the degree of liquidity of the stock market cannot but be of importance to researchers. It will also be useful in ascertaining the relative efficiency of the stock market in sourcing capital for the real sector. Knowledge of the relative efficiency of the stock market could aid investors and managers in making their financing decision and also the government in planning its programmes and policies, especially in creating a more vibrant capital market.
The concept of market liquidity is central to finance. The trading value of a stock market is usually indicative of its level of activity, that is, the rate at which securities are bought and sold, as well as its liquidity, which is the ease at which securities can be converted into cash (Idowu and Babatunde, 2014). An important attribute of a stock market is its ability to absorb large volumes of transactions without significant changes in prices (Chipaumire and Ngirande, 2014). In very active and liquid markets such as the German, British and French markets, annual trading value of securities run into hundreds of billions of dollars while on the New York, Tokyo markets, annual value is in trillions of US dollars (Levine 1996). The level of activity is usually influenced by the number and quality of listings, the size of a market’s outstanding shares and the efficiency of the delivery system (clearing, settlement, depository etc). In other words, if a market has several high quality securities and the clearing and settlement system is efficient, investors would not develop the tendency to “buy and hold” securities while speculative activities would be encouraged.
The Nigerian stock market is relatively illiquid although recording marked improvements in recent years since the enthronement of democracy in 1999. Osamwonyi and Kasimu (2013) attribute the low liquidity of African stock markets to the fact that the sectors that dominate the economic activities are not major players on their stock markets e.g the oil and gas sector of the economy of Nigeria and the agricultural sector (cocoa) of that of Ghana. According to the report released by The Nigerian Stock Exchange (2006), in 2005, the market registered a total trading value of N262.937 billion. This performance contrasts with N265.5 million total trading volume registered in 1990, N1.8 billion in 1995 and N11.1 billion in 1997. Thus between 1990 and 2005, the value of trading had risen by more than 90000 percent. The growth in the value of equities is also remarkable during the period. This study shall conduct a more detailed appraisal of the market liquidity of the Nigerian Stock Exchange and also investigate its impact on the growth of the economy.
1.2 Statement of Problem
Economic growth requires capital to augment other factors in the source of capital. One such resource is the capital markets specially, the stock exchange. All over the world, every growing and fast growing economy has strong efficient and well capitalized stock exchange. It then means that a relationship exists between development of stock exchange and growth of the national economy. In Nigeria, the relationship between the Nigeria stock exchange and the growth of the Nigerian economy has not been empirically established. This has resulted in formation and implementation of economic policies without an eye on the development of the Nigeria stock exchange. This lack of implementation has resulted in the sluggish growth of Nigerian economy. There remains a gap in understanding the relationship between the impacts of Nigerian stock exchange on the economic growth.
The market is faced with such liquidity problem, ignorance etc. A firm wishes to sell securities has to start with high integrity which has common characteristics; otherwise it would be difficult to tend buyers. For another problem which seemed to be facing the Nigerian stock exchange market is the attitude of most Nigeria investors do not like or know that they can also see their shares but for the fear of not being able to get an equally good one. Thus, the flow of securities in and out of the market is severally limited. Thus, it is compounded by the facts that the government holds majority of shares in many of the major equities in the market and as a matter of policy, government does not trade with its shareholding for speculative reasons. These as mentioned above constitute the problems facing the stock market, also include, inability to attract enough investors. These problems have raised lots of doubts and criticism on the impact of Nigerian stock exchange market in the economic growth.
There is also the problem of limited range and variety of securities offered by the quoted companies. This is to say that the supply of securities in the Nigerian stock market is inadequate. Besides, they are some laws governing the operation of the stock market which were considered to be overlapping. Such legislation includes the Securities and Exchange Commission (SEC) decree 1988, stock exchange act 1961, the companies allied decree 1990, banks and other financial institutions decree (BOFID) 1991, Nigerian investment promotion commission (NIPC) decree 1995 and trustees act 1957 and 1992, among others. (Daily times, 1997)
All these deficiencies of the stock exchange market are matter of great concern not only to people who have a stake in orderly development purposes have found it difficult to make use of the market because of all these problems facing the stock market. Apart from all these operational and social-economic problems, the Nigeria stock exchange market is still below standard and I believe that there is growing need for improvement of stock exchange market towards its goal of an orderly growth of a market that will enhance the income of both investors and the operations.
- Research Questions
In order to address the aforementioned problems as identified in the statement of problem the following researchable questions will guide the researcher:
- To what extent does stock exchange market impact on Nigeria economic growth?
- Is there any observed long run relationship between stock exchange market and Nigeria economic growth?
1.4 Objectives of the Study
The central objective of this study is to analyze the economic impact of stock market on Nigerian economy. The specific objectives include;
- To examine the impact of stock exchange market on Nigeria economic growth.
- To evaluate if there is any longrun relationship between Nigeria’s stock exchange market and economic growth.
1.5 Research Hypotheses
This provides tentative answers to research questions subject to proof or otherwise by the evidence from the study stock exchange market on Nigeria economic growth . Hence the working hypotheses of the study are stated as follows:
H0: The Nigerian stock exchange does not have significant impact on Nigeria’s economic growth.
H0: The Nigerian stock exchange has no longrun relationship with Nigeria’s economic growth.
1.6 Significance of the Study
The general relevance of the study lies in its understanding of the Economic Impact of Stock exchange Market on Nigerian economic growth and so will be particularly relevant in the following areas. In particular, by using Nigeria stock market as empirical evidence, the research will provide quantitative information which will enable us to ascertain whether or not stock price fluctuations have impact on the Nigerian economy. The finding of the study will reveal or will therefore be relevant to the government and policy makers in fine-tuning stock market policies that will be applied to ascertain sustainable in the Nigerian stock market.
The study will also serve as a basis for further research work on this field. Also, it will relevant to the stock market operators, monetary institutions or authorities and regulating agencies to harness and fine-tune stock market prices to promote high performance level especially at this critical moment of global economic crises and the nation’s economic circumstances. The findings if the study will equally afford quoted companies the stock opportunity to assess whether or not they have been performing well in terms of price stability.
Finally, a further justification for the study is the benefit of applying the economic analysis of the impact of stock market in Nigeria to economic and financial analysis kits and increases the stock of knowledge in both the stock market and the Nigerian economy.
1.7 Scope and Limitations of Study
This work is a study of economic impact of stock exchange market on Nigeria economic growth. The study employs empirical evidence from both stock market using the Nigerian stock exchange and Nigerian economy as whole. The choice is made out of the researcher’s interest in the given country’s stock market and economic circumstances. The period covered by the research is thirty-four (35) years period 1981-2015. The availability of uniform data on the variables informed the researcher’s choice of the period of analysis.
This study is limited by the following factors; Paucity of materials, financial constraint: Lack of adequate funds on the part of the researcher constituted another problem, Time constraint: The researcher was limited by time as he combined academic work with the study. In spite of all these problems, efforts were made to enhance the quality of this study.
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