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«EGWU MAUREEN IHEAKACHI PG/M.Sc/08/47419 IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH IN NIGERIA 1990 - 2012 DEPARTMENT OF BANKINNG AND FINANCE FACULTY ...»

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EGWU MAUREEN IHEAKACHI

PG/M.Sc/08/47419

IMPACT OF CAPITAL MARKET ON ECONOMIC

GROWTH IN NIGERIA 1990 - 2012

DEPARTMENT OF BANKINNG AND FINANCE

FACULTY OF BUSINESS ADMINISTRATION

Digitally Signed by: Content manager’s Name

Ugboaku, Edith J.

DN : CN = Webmaster’s name

O = University of Nigeria, Nsukka

OU = Innovation Centre

IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH

IN NIGERIA 1990 - 2012 BY

EGWU MAUREEN IHEAKACHI

REG. NO: PG/M.Sc/08/47419

DEPARTMENT OF BANKING AND FINANCE,

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS

DECEMBER, 2014 TITLE PAGE

IMPACT OF CAPITAL MARKET ON ECONOMIC GROWTH

IN NIGERIA 1990 - 2012

BEING A DISSERTATION PRESENTED TO THE

DEPARTMENT OF BANKING AND FINANCE,

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA

ENUGU CAMPUS

BY

EGWU MAUREEN IHEAKACHI

REG. NO: PG/M.Sc/08/47419

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR

THE AWARD OF MASTERS OF SCIENCE (M.Sc) DEGREE

IN BANKING AND FINANCE.

SUPERVISOR: ASSOC. PROF. E. CHUKE NWUDE DECEMBER, 2014

APPROVAL PAGE

This research work has been read and approved as having satisfied one of the conditions for the award of Master of Science (M.Sc), Department of Banking and Finance, University of Nigeria, Nsukka, Enugu Campus.

…………………………………..…….. ….. ……. ………….

ASSOC. PROF. E. CHUKE NWUDE DATE (Supervisor) ……………………….. ……………………..

ASSOC. PROF. C. E. NWUDE DATE (Head of Department)

DECLARATION

This dissertation written by Egwu Maureen Iheakachi with Registration No.

PG/M.Sc/08/47419 presented to the Department of Banking and Finance, University of Nigeria, Enugu Campus has not been submitted for the award of any degree or diploma either in this or any other tertiary institution.

…………………………………….. ……………………….

EGWU MAUREEN IHEAKACHI DATE

(Student) DEDICATION I dedicate this work to Almighty God.

ACKNOWLEGEMENT

I sincerely express my deepest gratitude to my supervisor, Prof C.U. Uche, for his fatherly role in the course of this work. My immense gratitude goes to my H.O.D; Dr J.U.J Onwumere for his academic advice and corrections especially in my research methodology.

I appreciate the support of my lecturers especially Dr Ujunwa, who also help in supervising the work. My thanks also go to my friends, relations and well wishers.

Special thanks goes to My parents, brothers; Mr & Mrs Francis Egwu, Mr & Mrs Emmanuel Oko Egwu, Mr Mark Egwu and my sister; Priscilla Egwu for their support and encouragement throughout the duration of this work.

I cannot forget the kind gesture towards me by Mr & Mrs Michael Inya and Miss Faith Ogbonna for their support.

Finally, may I thank Remigius Odo and Udochukwu Nwachukwu for their advice and encouragement in the course of this work.

ABSTRACT

This study appraised the impact of capital market on economic growth in Nigeria from 1990 to 2012. In the course of the study, it examined the effect of capital Market in the significant change of investment level in Nigeria and ascertained the movement of transaction at the Nigerian Capital Market within the period under study. Regression analysis was employed in the work. In the model, Real Gross Domestic Product Per Capita (dependent variable) and the explanatory variables; Total New Issues Ratio (TNIR), Market Capitalization Ratio (MCAPR) and Value of Transaction at the Nigerian Stock Exchange Ratio (TNSR) were used in the first model while Gross Capital formation Ratio (dependent) and the same explanatory variables were specified in the second model. The result reveals that the regression plane is statistically significant. It was found that capital market has significant impact on the Nigerian economic growth within the period under study. More so, capital Market has not caused any significant change in the investment growth in Nigeria and there are fluctuations in the upward movement of the transaction at the Nigerian Capital Market. It was recommended that the capital market should provide a meaningful orientation about the operations and mechanisms of the market to the interested public. The government through its appropriate agencies should encourage the development and participation in the market by a meaningful media campaign (radio and television). Disclosure of financial positions of the listed companies should be published regularly in newspapers.





TABLE OF CONTENTS

Title page………………………………………………………………………….. i Approval page ……………………………………………………………………. ii Declaration ………………………………………………………………………. iii Dedication ……………………………………………………………………….. iv Acknowledgement………………………………………………………………… v

Abstract

………………………………………………………………………… vi Table of Content………………………………………………………………….. vii List of Tables ……………………………………………………………………. ix CHAPTER ONE

1.0 INTRODUCTION

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

1.2 Statement of the Problem……………………………………………............. 4

1.3 Objective of the Study ………………………………………………………. 6

1.4 Research Questions…………………………………….…………………….. 6

1.5 Hypothesis of the Study………………………………..…………………….. 7

1.6 Scope of the Study…………………………………………………………… 7

1.7 Significant of the Study………………………………...…………………….. 7 References

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 REVIEW OF RELATED LITERATURE

2.1 Theoretical Literature……………………………………………………… 11 2.1.2 Origin of the Capital Market……………………………………………… 11 2.1.3 The Component of Capital Market……………………………………....... 13 2.1.4 Capital Market Operators ………………………………………………… 16 2.1.5 The Nature of the Capital Market in Nigeria……………………………… 20 2.1.6 The Nigerian Stock Exchange…………………………………………….. 21 2.1.7 Central Bank of Nigeria…………………………………………………… 28 2.1.8 Securities and Exchange Commission…………………………………….. 28 2.1.9 Economic Contribution of the Nigerian Capital Market………………….. 31 2.1.10 The Role of the Capital Market in the Transfer of Funds………………… 31 2.1.11 The NSE and Capital Formation………………………………………….. 32 2.1.12 Major Reforms in Nigerian Capital Market……………………………… 35 2.1.13 Global Capital Market Integration and Economic Growth……………… 39 2.1.14 Problems of the Nigerian Capital Market………………………………... 42

2.2 Empirical Works on Capital Market and Economic Growth …………….. 43

2.3 Differences between the researcher’s view and previously reviewed literature.. 47 Reference

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Research Design…………………………………………………………. 53

3.2 Nature and Sources of Data…………………………………………………53

3.3 Description of Research Variables…………………………………………..54

3.4 Techniques of Analysis……………………………………………………...56

3.5 Model Specification…………………………………………………........ 57 Reference

CHAPTER FOUR

4.0 PRESENTATION AND ANALYSIS OF RESULT

4.1 Presentation of Data……………………………………………………... 62

4.2 Presentation of Result …………………………………………………… 74

4.3 Test of Hypothesis……………………………………………………...... 78

4.4 Implication of Result……………………………………………………… 80 Reference

–  –  –

Table 4.1.

1: Total New Issues (TNI), Market Capitalization (MCAP) and value of Transaction at the Nigerian Stock Exchange (TNS) for (1990-2012) ………62 Table 4.2.1: Determination of Real Gross Domestic Product per capital ………………..57 Table 4.2.2: Determination of Market Capitalization, Total New Issues and value of transaction at the Nigeria Capital Market Ratios for (1990 -2012) ………….69 Determination of ratio of Gross fixed Capital Formation from 1990-2012....73

Table 4.2.5:

–  –  –

1.1 Background of the Study The capital market has been identified as an institution that contributes to the economic growth and development of emerging economies like Nigeria (Osaze, 2000). This is made possible through some of the roles played such as channelling resources, promoting reforms to modernize the financial sectors, financial intermediation capacity to link deficit to the surplus sector of the economy, and a veritable tool in the mobilization and allocation of savings among competitive uses which are critical to the growth and efficiency of the economy (Alile, 1984).

Capital market is made up of financial institutions which deal in long- term loans for investment. They therefore bring long-term lenders and borrowers together. Loans given are usually for more than two years. Institutions that operate in this market include; insurance companies, issuing Houses, Development Banks, Investment Banks, Investment Trusts, Building Societies or Mortgage Banks, Finance Corporations, Savings Banks and Stock Exchange. Financial instruments used in the capital market to finance long-term investments are stocks and shares, company bonds and government bonds.

The capital market can be divided into the primary and the secondary market. The primary market deals with the buying and selling of new securities. The secondary market is the market that deals with the buying and selling of already existing (secondhand) securities.

It is dominated by the Stock Exchange.

In the narrowest sense, the capital market involves the problems and prospect of equity investment. This involves the issue and market of shares, bonds and debentures using the services of brokers, dealers and underwriters.

It helps to channel capital or long-term resources to firms with relatively high and increasing productivity thus enhancing economic expansion and growth (Alile, 1997).

Ekundayo, (2002) argues that a nation requires a lot of local and foreign investments to attain sustainable economic growth and development. The capital market provides a means through which this is made possible. However, the paucity of long-term capital has posed the greatest predicament to economic development in most African countries including Nigeria.

Osaze, (2000) sees the capital market as the driver of any economy to growth and development because it is essential for the long-term growth capital formation. It is crucial in the mobilization of savings and channelling of such savings to profitable self-liquidating investment.

The Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the economy. It does not only provide the funds required for investment but also efficiently allocate these funds to projects of best returns to fund owners. This allocative function is critical in determining the overall growth of the economy. The functioning of the capital market affects liquidity, acquisition of information about firms, risk diversification, savings mobilization and corporate control (Anyanwu, 1998). Therefore, by altering the quality of these services, the functioning of capital markets can alter the rate of economic growth (Equakun, 2005).

Geert (1997), posits that the cheap source of funds from the capital market remain a critical element in the sustainable development of the economy. He enumerated the advantages of capital market financing to include no short repayment period as funds are held for medium and long term period or in perpetuity, funds testate and local government without pressures and ample time to repay loans.

Capital market development has an important role to play in economic development.

Jyoti Koirala (2009), argue that capital market development is an important wheel for economic growth as there is a long-run relationship between capital market development and economic growth. Capital market development has the direct impact in corporate finance and economic development.



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