The Role Of Nigerian Stock Exchange In Economic Growth And Development Of Our Country

Project and Seminar material for Accountancy

Project and Seminar material for Accountancy


Abstract


This project work takes a look at the role of Nigerian stock exchange has played in a developing economy like Nigeria.

The Nigerian stock exchange performance indicators has been examine and analyzed critically to show the extent the stock market has been able to mobilize capital in the economy.

This work also identified the regulatory and supervisory role of the Nigerian Securities and Exchange Commission (NSEC) and how it has taken part or participated in the financial market especially in determining prices of stocks and securities.

The mutual relationship between the value of Transaction (VOT) and the Gross Domestic Product (GDP) are shown using the statistical and economical tools. Also, the level of significant between the money supply and the list of quoted companies are tested.

The researcher identified the problem inherent in the Nigerian stock exchange. That is, problems impending the stock market from playing its functional role effectively.

Based on the findings of this research work, the researcher made policy recommendation on how the Nigerian stock exchange can improve in its functional responsibilities so as to play a prominent role in developing the Nigerian economy.


Chapter One


1.0 Introduction

A stock Exchange can be defined as a place where securities (bonds, stocks and shares) of various types are traded openly. It is an institution, which sees to the efficient allocation of available capital funds to the diverse uses of the economy. Okezie B.N. (2002).

Securities are documentary evidence of ownership or entitlement to claim upon the asset of the issuing organization, which may be a business firm, government or quasi-government institution. These documentary evidence usually have no fixed or absolute values but are traded on the stock Exchange at value which are subjectively determined by those buying or selling them.

Stock Exchange is also a place where the enormous capital which is required to operate the huge industrial and commercial co-operation of today can be raised in such large amount and of such competitive terms (costs, length of negotiation, conditions e.t.c.) that no other institution in a capitalist system can possibly match.


1.1 Historical Background Of The Study

The stock Exchange is an symptoms institution which detect the symptoms of an impending economic boom or decline long before the predicted period actually occurs.

It also seek for the efficient allocation of available capital funds to the diverse uses in the economy and through its extremely sensitive pricing mechanism ensures that so much of total available capital resources is allocated to each firm within each industry as that firm deserves to have, as put by Okezie B.N. (2002).

The Nigerian stock Exchange is one of the oldest institutions in the Nigerian financial market.

Its history dates back to May 1958 where there was discussion about the need fore the establishment of a capital market. This discussion resulted from the following:

  1. The need of the government to finance the growing budget deficit, which started in 1958.
  2. To tackle deteriorating or depreciating balance of payment position.
  3. To meet the increasing demand from the nationalist and mobilize funds to embark on development programme.

The first step was to set a committee to consider the ways and means of fostering a share market in Nigeria.
The report of the committee published in 1959 gave birth to establishment and incorporation of the Lagos stock Exchange in 1960 which was later changed to the Nigerian stock exchange (NSE) in 1977 with branches in Kaduna and Port-Harcourt. This was to enhance the operations of the exchange, and maintain proper standards of conduct and professionalism in the stock exchange and security market.

Later, the Federal Government endorsed for the establishment of the security and exchange commission (SEC) by decree No. 71 of 1979, as the Apex regulatory institution responsible among other things for the registration of stock exchange securities declared and their agents.

Today, we have branch offices of the Nigerian stock Exchange (NSE) at Kano 1989, Onitsha 1990, Ibadan 1990, and Abuja 1999.


1.2 Statement Of Problem

One of the aims of this project work is to find solution to the following problems by Nigerian stock Exchange.

  1. Scarcity of instrument for trading on the floors of the stock exchange due to the buy and hold policy of Nigerians who regards stocks as savings instead of trading investment.
  2. Inability of the government to privatize public corporations.
  3. The use of dual exchange role to measure total market capitalization in the exchange. This has caused a lot of mishap in the Nigerian stock exchange.
  4. The stock market is not well developed due to lack of skilled manpower. The development of this market depends largely on the operators.
  5. Non-attraction of foreign investors.
    Based on these, the researcher is interested in finding out how these problems can be solved by the Nigerian stock exchange.

1.3 Objectives Of The Study

The objectives of this study is as follows:

  1. To assess the role of the Nigerian Stock Exchange in a developing economy like Nigeria.
  2. To investigate the problem of stock exchange vis-a-vis. The non-entry of foreign investors into the market.
  3. To determine how the Nigerian stock Exchange can be made none effective and efficient.

1.4 Research Questions

Some questions are developed by the researcher on the role of Nigerian stock Exchange in economic growth and development. The questions include the following.

  1. Does Nigerian Stock Exchange facilitate the attraction of foreigners into Nigeria for development purposes?
  2. Has Nigerian Stock Exchange any influence in the maintenance of fair price of securities traded in the capital market?
  3. Has Nigerian Stock Exchange any effect in offering of shares and stock to the general public?
  4. Does Nigerian stock Exchange provide investment outlets to individuals and corporations with surplus of investible funds?

1.5 Significance Of The Study

The study will help in suggesting ways the Nigerian stock exchange can equip and fortify itself to face the challenges of the future for optimum performance;

As Nigerian moves towards economic prosperity and stability, this study can be of great significant to the accountancy students, operators in the capital market, non-accountants, Federal Government and State Government in their dealings with the Nigerian Stock Exchange and in shares and securities.


1.6 Scope Of The Study

The project work focuses its attention on the Nigerian stock Exchange (NSE) especially in assessing the role and contributions to a developing economy like Nigeria.

The study also evaluates the performance of the Nigerian stock Exchange and its usage of market capitalization; checking the dept of the market and assessing its shares price movement.


1.7 Limitation Of The Study

In spite of the care taken in conducing this research, there are still some constrains that confronted the researcher in the course of the study.
They include:

Shortage Of Finance:

Owing to the limited fund at the student’s disposal, the researcher point out the above outline as one of the limiting factor to this project work.

Time Constraint:

The time allowed for the research work is limited and therefore do not permit the researcher to elaborate more on the work.

Date Of Information:

Most of the information available to the researcher have been outdated and current once are not easily obtained, therefore the researcher sees it as a constrains to this project work.


1.8 Definition Of Terms

Capital Market:

The capital market refers to a collection of financial institutions set up for the granting of medium and long term loans. It is the market, which exists for the mobilization and intermediation of long-term fund between surplus and deficit economic units.

Money Market:

This is a market for the mobilization and intermediation of short-term securities with maturity not exceeding one year. It involves all institutions that deal in the purchase, sale and transfer of short-term money and credit.

Market Capitalization:

This can be described as the market mechanism that determines the growth rate of fund and the availability of funds in the stock market.

Operators In The Market:

This can be described as the players in the stock exchange market. These players include the financial institutions which act as financial intermediaries for obtaining long term funds from investors and allocating the funds to the institutions that requires them.

Performance Indicators:

This can be defined as instrument that measures works. It can also be referred to as measures that point out the level at which the stock exchange works.

Stock Exchange:

This can be defined as a market where bonds, stocks and shares of various types are bought and sold.

Securities:

This can be defined as documentary evidence of ownership or entitlement to claim upon the asset of the issuing organization which may be a business firms, government or quasi -government institution.

Primary Market:

This is a market that is concerned with the offering of new issues such as debt instruments and Equity. It as a platform where a company can go for investment purposes.

Secondary Market:

This is a market that exists for sale and purchase of old or already existing securities.

Investor:

A person or institution that uses his savings or borrowings to buy securities.

Issuing House:

As a member of stock exchange, it is firm that helps to prepare prospectus and to sell shares offered to the public by companies and government.

Merger:

It is the fusion of two or more existing companies or entirely a new one.

Acquisition:

This is the purchase by one company of controlling interest in the share capital of another existing company.

Prospectus:

It is an invitation to the public to subscribe to or to purchase shares or debentures in a company.

Stock Broker:

This is a person or organizations that buys and sell stock and shares for people.


Chapter Three


3.0 Summary Of Findings, Conclusion And Recommendation.

3.1 Summary Of Findings

The Nigerian stock Exchange is faced with the task of developing the Nigerian economy trough mobilization of long–term funds to finance development, projects for the government and industries.

The researchers findings from the previous chapters have shown that the Nigerian Stock Exchange has performed rather poorly since its inception forty years ago. Also, the capital is being created at the fast rate in the Nigerian Stock Exchange until this was halted by political instability and the Stock Exchange has not since found its forting.
The Nigerian stock Exchange has been found to perform below expectation in its market depth. As in 2007, the all–securities index of the Nigerian Stock Exchange fall to 0.1 percent or N1 million with a market capitalization standing at N8.996 trillion as against N9.006 trillion. As of 1977 the Stock Exchange contained only 264 quoted companies. Although, this can be regarded as a remarkable improvement from the 157 quoted companies in 1980 but the figures are still low and discouraging.

Corruption amongst company owners and lack of education of the investing public has been found to be one of the impediments of the progress of the Nigerian Stock Exchange. These problems arise in the form of:

1) Tax Avoidance:

Companies regularly arrange their financial affairs through over invoicing of bills, thus declare less taxable companies. Thus the annual profit of companies’ securities quotation is understated and unattractive.

2) Buy And Hold Syndrome:

Due to lack of education, most Nigerians regard investments as savings, thus most Nigerians buy without any intention to sell.


3.2 Conclusion

Basically, the Nigerian stock Exchange has remained inefficient in its performance and its intermediatory function. For a stock market to perform the function for which it was established, it must be efficient in its operational character.

In an efficient stock market, information must be freely available to rational, profit optimizing investors. Stock prices must be so fairly valued that the average investors will receive an average returns because the market is an efficient place of earnings and potential risk.

The desirability of this type of market in Socio-economic terms is to ensure that savings are channeled into the most profitable investment and capitals are allocated optimally.

The researcher believes from observation that the institution for improving long-term development financing mechanism exist in this country, and that if the guide specified earlier in this chapter are followed, then all the recognized problem can be solved and the Nigerian stock Exchange can attain its rightful position as one of the leading stock market around the world.


3.3 Recommendation

The Nigerian capital market as the main source of long-term capital has remained sluggish in terms of growth, efficiency, activities and funds mobilization. The problems which the researcher earlier identified can be mitigated through:

  1. Better and more progressive educational programmes to enlighten both management of companies and the general public on the advantages of the stock market.
  2. A viable transition to civil rule programmes that will bring confidence to both foreign and local investors.
  3. The Federal Government should also establish minimum capital requirement for firms who wish for securities, thus to honour their obligation and avoid distress.
  4. Viable privatization programme should be implemented so that the foreign investors will not be scared away.
  5. Strict measures should be taken to ensure that quoted companies disclose their activities and ensure regular and prompt payment of dividends.
  6. The Federal Government should compel all companies that have attained a particular minimum size to seek quotation.
  7. Establishment of a single, infragmental stock exchange with multiple branches relying on similar regulation for effectiveness and control.
  8. Improving accounting and auditing standard to satisfy the information requirements of financial market investors and the international investment public.
  9. Federal, state and Local Government should patronize indigenous goods and services to enhance encourage investors. Setting ethical principles and standards of honestly, fairness, diligence, competence and integrity for market operations.
  10. Intermediation costs should be reduced to eliminate stamp duties and deregulating dealers commission.
  11. Deregulating the price mechanism, which is not beneficial to a free market economy.

The Role Of Nigerian Stock Exchange In Economic Growth And Development Of Our Country


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