The Structure Of The Nigerian Capital Market And It’s Impact On Economic Development

Project and Seminar Material for Economics

The Structure Of The Nigerian Capital Market And It’s Impact On Economic Development


The project examines the structure of the Nigerian capital market and its impact on economic development in Nigerian Stock Exchange. The study main objective is to ascertain the means of raising funds in Nigeria capital market and also to find out if the capital market has any significant impact on the masses. The primary source of data collection was used in gathering data from respondents. A structure questionnaire was designed by the researcher and validity by two experts from the statistics department was used to obtain data and chi-Square (X2) was used to test hypotheses formulated.

It was discovered ignorance of the public as to the benefits derived from being a listed number of the capital market has contributed much to the low level of trading in the stock market. The study concludes that the capital market does not have a tremendous impact in the capital market because the more the companies in the market, the higher the rate of expansion it will have. Based on the findings the study recommends amongst others that tax laws should be reviewed by the federal government to see that the tax burden on those who invest in the capital market is reduced to nearest minimum so that investors will be encouraged to invest more.

Chapter One


1.1 Background to the Study

The Nigerian capital market is a part of the Nigeria financial system. The Nigeria financial system has been the life wire on which the Nigeria economy pilots its macro-economy variables. For any economy to be able to take care of her responsibilities i.e. the citizen adequately, it must have a very strong financial system.

The financial system refers to a set of rules, regulations, aggregation of financial arrangements, institutions and rest of the world to increase economic growth and development of nation. It does this by providing a medium of exchange which promotes specialization, mobilization of facings from the surplus units and channeling into the deficit units of the economy for productive capacity and over all output and employment (Akinsulire, 2011).

The Nigerian financial system has evolved over the last few decades from a rudimentary to a more sophisticated one with numerous institutions and operators that facilitate the performance of the primary role of the system savings, mobilization and allocation of resources among competition units within the system.

The Nigerian financial system comprises of several financial institutions, instrument and operators. The financial system regulators include the Central Bank of Nigeria (CBN), the Federal Ministry of Finance (FMF) and the Securities and Exchange Commission (SEC), these are the major regulating agencies in Nigeria. Others are Commercial Banks, Development Banks, such as Federal Mortgage Bank of Nigeria (FMBN), the Nigeria Bank of Industry (BOI), the Nigeria Agriculture and Co-operative Bank (NACB), the Nigeria Industrial Development Bank (NIDB) and specialized banks. Other institutions and funds include the National Pension Commission (PENCOM), insurance companies, the National Economic Reconstruction Fund (NERFUN) finance houses, Bureau De Change and the Nigeria Deposit Insurance Corporation (NDIC). This in terms of number and variety, the Nigeria financial system is quite robust.

From the information, it can be seen that the financial system is the tool a nation uses in raising funds.

The aim of this research work is therefore to bring to light the ways the capital market operate by analyzing the importance of corporate capital to the economy of Nigeria.

1.2 Statement of Problem

The problem of this research work is to analyze how the capital market operates and also its impact on the economic development of Nigeria.

However, the following problems were also identified by the researcher during the course of the study and there include: unavailability of literature covering the Nigeria capital market and corporate securities, public ignorance of the existence and benefit of the Nigerian stock exchange, stressing on the effect of this ignorance as far as loss of Investment opportunity as well as understanding the mechanism, structure and rating of the capital market of Nigeria economy.

1.3 Research Questions

This research work was guided by the following research questions:

  1. Does the capital market provide enough funds for economic development?
  2. Does the capital market have any significant impact on the masses?
  3. How can the capital market role stimulate economic growth in Nigeria?

1.4 Objectives of the Study

The purpose or objectives of this research are:

  1. To ascertain if capital market provides enough funds for economic development.
  2. To find out if the capital market have any significant impact on the masses.
  3. To find out how capital market role stimulate economic growth in Nigeria.

1.5 Statement of Hypotheses

For the purpose of this study, the following hypothesis will be tested and sued in analyzing data. Firstly, there are two types of hypothesis:

Hypothesis One
  • HO: The capital market does not provide enough funds for economic development.
  • HI: The capital market provides enough funds for economic development.
Hypothesis Two
  • HO: Capital market does not have impact on the masses.
  • HI: Capital market has impact on the masses.

1.6 Significance of the Study

The environment in which the stock market operates is very complex and not static; the social economic arch will therefore aid the understanding of the position of the stock exchange in the capital information accumulation, allocation and transfer to sounds as it adjusts to the ever changing society. Also, the careful examination of the operation and structure of the capital market will lead to public awareness and hence, alleviate the companies and the public for investment motive will change. The NSE is institutions which help businesses to raise funds for economic growth i.e. spending on schools, roads or other public services, to mobilize long term funds.

1.7 Scope of the Study

The scope of this research is to look into operations of the capital market through the stock exchange floors in Nigeria. But for the purpose of this research, due to the various constrains as elucidated by the researcher. Only the Lagos floor of the Nigeria stock exchange was covered. The researcher did not make any attempt to study other stock exchange floors in other states and it is between the time ranges of 2009 – 2013.

For the course of this study, the researcher used a sample size of 120 for effective survey.

1.8 Limitations of the Study

The study is faced with some constraints which may likely affect the generalization of findings, the constraints include the following:

  1. The compilation of information used for the preparation of these work has not been easy. One of such problem is the refusal of some staff having the fear that they might be dismissed if they disclose any information regarding their work.
  2. Problem of sourcing for material; The research was faced with problems of getting current materials, textbooks, journals, seminar papers in relation with this research topic. The University of Benin library are outdated for this research work.

1.9 Definitions of Terms

Above per value:

This is where a share is being sold above its normal value.


The amount of share given to a prospective investor.

Asked price:

The amount which the firm wants its shares to be sold.


An investor who believes that the market prices are going to go down.


A broker is a dealing member of the stock exchange. He provides services to anyone (an investor) who want to buy and sell shares.


A kind of security traded on the stock exchange


Investor who believes that the market prices are going to go up.


Investor who want to make profit from new issues of shares. He buys the shares before they are listed, then he sell them at a higher price soon after they are listed.

Profit earning ratio:

This of a share dividend by earning for a share for a 12 months period.


A lenity of ownership that represents an equal proportion of a company’s capital.


Is that share of a company’s profit that is given to its share holders. Dividend is not a fixed amount. It does not always remain same.

Chapter Five

Summary, Conclusion and Recommendation

5.1 Summary

This study has developed a prudent multiple regression model for the purpose of explaining and analysing empirically, the impact of capital market performance on economic growth in Nigeria. Using multiple regression analyses to model development, the study estimates the relationship between four explanatory variables; market capitalization, total new issues, volume of transaction and listed equities and one explained variable, Gross Domestic Product, by means of the ordinary least square technique.

The study hypothesized a significant impact between the four explanatory variables and the Gross Domestic Product and the findings of the research are based on the time series data collected for the period 1983 – 2010 from the NSE, SEC and CBN. The result of the study reveals that the four predictor variables market capitalizations, total new issues, volume of transaction have an aggregate significant impact at I per cent level of significance and listed equities is at 5 per cent level of significance on the GDP.

The foregoing provided the justification for the rejection of all the null hypothesis of the study. The study also reveals that market capitalization, has the highest impact on the GDP followed by total new issues and then the volume of transaction and finally listed equities.

5.2 Conclusion

Based on the findings of the research, the study concludes as follows:

First, the study has provided evidence on the four independent variables; market capitalization, total new issues, volume of transaction and listed equities in explaining and predicting economic growth in Nigeria. The study concluded that the four variables have played a significant role in influencing the capital market performance on Nigeria’s economic growth.

Secondly, the study also establishes significant positive relationship between total new issues and economic growth. It is therefore concluded that as new issues are raised and floated in the market, this in turn increases the number of shares traded and economic growth equally expands as well as impacting on the GDP.

Thirdly, the study documents a significant positive relationship between volume of transaction and the gross domestic product. This concludes that the volume of transaction is an important factor in determining the magnitude of trading of shares in the capital market and it goes a long way in improving the performance of the market and as well increases the efficiency of the market which invariably improves the economic growth of Nigeria.
Among the predictable variables market capitalization contributes highest to economic growth. In respect of volume of transaction the study concluded as having the lowest contribution to the aggregate impact of capital market performance on economic growth in Nigeria.

In addition, in respect of listed equity, the study concludes that listed equity of Nigerian capital influences the performance of the market and improves economic growth.

Finally, the study concludes that there is a complete absence of serial correction between market capitalization, total new issues, volume of transaction and listed equities as proxies of capital market performance.

Also the correlation matrix reveals that, market capitalization has the highest relationship with economic growth which signifies more contribution of capital market performance to Nigeria’s economic growth.

5.3 Recommendations

Based on the findings and conclusions of the study, the following recommendations are hereby presented:

  1. Firstly, there is need for improvement in the declining market capitalization by encouraging more foreign investors to participate in the market, maintain state of the art technology that will ensure a free flow
    of information in the market to attract more investors as well as increase new issues which will automatically increase the quantum of market capitalization. There is also the need to restore confidence in the market by the Securities and Exchange Commission and the Nigerian Stock Exchange through ensuring transparent and fair trading transactions and dealings in the stock exchange. Government should remove impediments to market growth in form of legal and regulatory barriers because they are sometimes disincentives to investment.
  2. Secondly, as observed the total listed equities in the NSE are still very low compared to other stock markets like those of South Africa and Egypt. Therefore, to increase the number of listed companies there is need to ensure stable macroeconomic environment, to encourage foreign multinational companies or their subsidiaries to be listed on the Nigerian stock exchange and also to improve the trading system in order to increase the ease with which investors can purchase and sell shares. iii. Furthermore, the government should invest more and develop the nation’s infrastructure in order to create an enabling environment for businesses to grow and for productivity and efficiency to thrive which will bust economic activities.
  3. Thirdly, total new issues are very important to the growth of any capital market. Therefore, government should employ appropriate trade policies such as establishing National Association of Securities Dealers (NASD) that promote the inflow of international capital and foreign investment, so as to enhance the production capacity of the nation. The Government should restore the confidence of shareholders (investors) due to the declining fortune of the stock market.

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