ABSTRACT
This
study is motivated primarily by the need to enhance capital accumulation from
the stock market, being the long term end of the financial system. This study
is an investigation of the impact of Nigeria stock exchange performance on the
economic growth of Nigeria. To accomplish these objectives, an econometric
methodology was adopted as a tool for testing the stated hypothesis. The
ordinary least square was chosen as the estimation tool because of the
advantages it has over other estimation technique considering the phenomenon
under study.
The result of the student - t test
revealed that the coefficient for market capitalization, investment rate and
real exchange rate are all statistical significant at 5 percent level of
significance. But the coefficient of real interest rate were not statistically
significant at 5 percent level of significance The R2 which is the
coefficient of multiple determination also revealed that 99 percent of the
variation in the dependent variable is caused by the variation in the
explanatory variables. The F test result suggested that the model is
statistically significant.
Expansion and
efficiency of the Nigerian Stock Market would also be realizable if the
recommendations in this project are considered This study recommends that the
financial sector should be fully liberalized for efficient functioning of the
financial system, the activities of the Nigerian Stock Exchange should be made
more transparent as this will bring bout confidence in the mind of investors
and people will be encouraged to invest, and the Government should encourage
Nigerians to take advantage of the Stock Market and save for investment growth
and capital formation in Nigeria.
TABLE OF CONTENT
Title Page ……………………………………………………………….i
Approval Page ……………………………………………………….ii
Dedication ……………………………………………………………...iii
Acknowledgement …………………………………………………iv
Abstract …………………………………………….………………v-vi
Table of Content ………………………………………………..vii-viii
CHAPTER ONE
1.1 Background of the study ………………………………………1-10
1.2 Statement of the problem………………………………………10-11
1.3 Objectives of the study…………………………………………11
1.4 Hypothesis of the study………………………………………...11
1.5 Significance of the study……………………………………….12-13
1.6 Scope and limitation of the study………………………………13
CHAPTER TWO
LITERATURE REVIEW
2.1 Theoretical literature…………………………………………..14-48
2.2 Empirical literature…………………………………………….48-56
CHAPTER THREE
METHODOLOGY
3.1 Method of Evaluation…………………………………………..57-61
3.2 Model specification……………………………………………..61-63
3.3 Data required and source………………………………………..63
CHAPTER FOUR
PRESENTATION AND ANALYSIS OF RESULT
4.1 ADF Test for stationery………………………………………64-66
4.2 Co integration test……………………………………………..66-67
4.3 Presentation of regression
result……………………………...67-68
4.4 Interpretation of regression
results……………………………68-70
4.5 Statistical criteria……………………………………………….71-74
4.6 Economic
criteria……………………………………………….74-78
4.7 Evaluation of hypothesis……………………………………….78
CHAPTER FIVE
SUMMARY, CONCLUSION AND POLICY
RECOMMENDATION
5.1 Summary…………………………………………………….79-80
5.2 Conclusion………………………………………………….80-82
5.3 Policy Recommendation………………………………..….82-83
Bibliography………………………………………………….84-90
Appendix……………………………………………………..91-97
CHAPTER ONE
1.1 BACKGROUND TO THE STUDY
Primarily, a stock market is the
place where companies can raise money to make their businesses bigger and
better. Companies raise money by selling shares or stocks to investors. At the
same time, the stock market gives investors an opportunity to invest in these
companies and benefit from any profit they can make.
A stock market can also be called a
capital or securities market as it encompasses the stock exchange, the
branches, and the stockbrokers. An organized securities market requires a
securities exchange, a securities commission or other regulatory agency, and
intermediaries such as dealers, brokers, securities analysts, etc. Virtually
all costs are borne by those who benefit. The intermediaries receive their fees
from the issuers or investors to whom they provide a service. The stock market
is usually funded through fees paid by investors and issuers; even the expenses
of the securities commission may be partially paid for by registration fees
rather than being a major burden on the government budget. Companies which go
public are subject to continuous cost of providing financial information,
transferring shares, paying dividends, and other aspects of shareholder
relations. The stock market is the aspect of the financial system which
mobilizes and channels long term funds for economic growth. The stock market
embraces trading in both new issues (primary) and old issues of stocks
(secondary). Securities are primarily of 2 types: debt and equity. Debt
securities include federal government development stock (GDS), industrial
loans, preference stocks, bonds e.t.c, while equity securities mainly concern
ordinary stocks which impose higher liabilities on the holders. Portfolio
investment in the capital market is the acquisition of financial assets (which
includes stock, bonds, deposits, and currencies) from one country in another
country. It is a form of investment that attempts to achieve a mixture of
income and capital growth, it deals with an institutional arrangement involving
the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange
(NSE), the operators, and the investors. Stock market is viewed as a medium to
encourage saving, help channel savings into productive investment, and improve
the efficiency and productivity of investment. The emphasis on the growth of
stock markets for domestic resource mobilization has also been strengthened by
the need to attract foreign capital in non- debt creating forms. A viable
equity market can serve to make the financial system more competitive and
efficient. Without equity markets, companies have to rely on internal finance
through retained earnings. Large and well established enterprises are in a
privileged position because they can make investment from retained earnings and
bank borrowings, while new companies do not have easy access to finance.
Without being subjected to the scrutiny of the stock market, big firms get
bigger, and for the emerging smaller companies, retained earnings and fresh
cash injections from the controlling shareholders may not be able to keep pace
with the needs for more equity financing which only an organized market place
could provide. The corporate sector would also be strengthened by the
requirements of equity markets for the development of widely acceptable
accounting standards, disclosure of regular, adequate, and reliable
information. While closely held companies can camouflage poor investment
decisions and low profitability, at least for a while, publicly held companies
cannot afford this luxury. The availability of reliable information would help
investors make comparism of the performance and long term prospects of
companies; corporations to make better investment and strategic decisions; and
provide better statistics for economic policy makers.
The capital market in any country is
one of the major pillars of long term economic growth and development. The
market serves a broad range of clientele including different levels of
government, corporate bodies, and individuals within and outside the country.
For quite some time now, the capital market has become one of the means through
which foreign funds are being injected into most economies, and so the tendency
towards a global economy is more feasible/ visible there than anywhere else. It
is, therefore, quite valid to state that the growth of the capital market has
become one of the barometers for measuring overall economic growth of a nation.
Historically, the financial sector in
the developing world has been primarily bank based. But, in recent years, there
has been a gradual shift to a more holistic approach which, alongside the
banks, seeks to develop the securities market. Some of the strength of the
securities market which makes them the focal point of the shifting emphasis is
their ability to:
1. mobilize long term savings for
financing long tenure investments;
2. provide risk capital (equity) to
entrepreneurs;
3. encourage broader ownership of firms;
and
4. Improve the efficiency of resource
allocation through competitive pricing mechanisms.
5. Provision of alternative sources of
finance other than taxation and foreign loan to fund public projects.
Apart from these primary benefits, a
developed securities market in the sense of efficient financial intermediation
further brings additional gains to the economy. These gains arise through:
1. lower cost of equity capital for
firms;
2. imposition of discipline on corporate
managers as share prices react to right and wrong judgment in firm’s investment
decisions;
3. existence of mechanisms for
appropriate pricing and hedging against risk; and
Increased flow of funds to the domestic econo
