1.1 Introduction
Stock exchange can increase economic growth by making available information on firms’ prospects and redistributing investible capital. The growth of stock exchange market has been phenomenon since 1960 when it was established with the number market instruments traded. The market operators and size of the market capitalization has also multiplied in great dimension and which eventually impacted on the economy. In the case of Africa, however, little proofs are available to support arising theoretical projections on the role of the stock exchange market in encouraging capital formation and investments.
As a prelude to other parts of this study, this chapter will discuss the background upon which this study was initiated, the statement of problems that led to this study, the Aim and Objectives of the study. Others are Significance of the study, Scope of work, Research hypothesis and questions, Limitations of the Study and Definition of technical terms.
1.2 Background of Study
The development of the stock exchange market in Nigeria started in 1946 when their year plan local ordinance was promulgated. The ordinance provided for the floating of & 300,000 (N600, 000) to stock bearing interest at 3%. It had maturity of 10-15 years.
Another attempt was made in 1951 through the creation of a loan fund financing public utilities. This, 1945-55 constitute the first significant attempts made under the British colonial administration to create investment opportunities of Nigeria. There they mark the beginning of capital market development in Nigeria but the specific objectives of developing a local capital market was not seriously by the colonial administration.
In 1958, committees under professor barrack. The director of the Nigeria institute of social and economic research was appointed to consider the ways and years of postering a stock exchange market in Nigeria. There was a favourable report recommending the creation of facilities for in stock.
However, with recent developments in the economic growth theory, there has been a shift in the focus of growth literature from the traditional factors (capital, labour and technology) to other factors that might also contribute to the growth process. These other factors include financial and stock exchange market development, macroeconomic environment, political stability and foreign direct investment (FDI), among others. Stock exchange market development provides a platform that helps in improving the allocation of capital and thus enhancing the prospects of long-term economic growth. A liquid stock exchange market development offers the potential for investors to quickly and cheaply alter their portfolios thereby reducing the riskiness of their investment, thus, facilitating investments in projects that are more profitable (Ezeabisili & Alajekwe, 2012). Without a liquid stock exchange market, many profitable long-term investments would not be undertaken because savers would be reluctant to tie up their investments for long periods of time
Stock exchange market development has an important role to play in economic development. Shahbaz and his friends (2008) argue that stock exchange market development is an important wheel for economic growth as there is a long-run relationship between stock exchange market development and economic growth. Stock exchange market development has the direct impact in corporate finance and economic development. Gerald (2006) states that stock exchange market development is important because financial intermediation supports the investment process by mobilizing household and foreign savings for investment by firms. It ensures that these funds are allocated to the most productive use and spreading risk and providing liquidity so that firms can operate the new capacity efficiently (Okonkwo, Ogwuru & Ajudua, 2014).
Therefore, in Nigeria (1999 – 2021) where the research was carried out, the activities that was conducted is to know the Impact of the Nigerian Stock Exchange on Economic Growth.
1.3 Statement of Problems
The stock exchange is expected to mobilize long-term savings to finance long-term investment by providing risk capital in the form of equity or quasi-equity to entrepreneurs. Indeed, the stock exchange is really not just a financial institution, but the very hub of the capital market, the pivot around which every activity of the capital market revolves. Hence, the exchange is expected to encourage broader ownership of productive assets and enhance the efficiency of the capital market through a competitive pricing mechanism.
The stock exchange, as an important component of the capital market, plays a significant role in the capital formation process because of the tremendous opportunities that ensue from its activities. There is an argument that the capital markets in developing countries in general have not lived up to expectations in terms of the extent and degree of capital mobilization for economic development. In spite of policies instituted by the government at various times, the performance of the Nigerian Stock Exchange over the nearly 30 years of its existence has been relatively poor compared to other stock exchanges of similar age in some developing countries.
1.4 Aim and Objectives of Study
The aim of the study is to appraise the Impact of the Nigerian Stock Exchange on Economic Growth in Nigeria. In achieving this aim, the following specific objectives were laid out as follows:
- To examine the contribution of the stock exchange market to the development of industrial capabilities and economic growth in Nigeria between 1999 to 2021
- To assess the possible strategies to needed enhance Nigeria stock exchange market.
- To determine the mission of the Nigeria stock exchange in promoting increased capital information in Nigeria between 1999 to 2021
- To identify the relevance of stock exchange market in the mobilization of investment capital.
1.5 Research Questions
The study came up with research questions so as to be able to ascertain the above stated objectives. The specific research questions for the study are stated below as follows:
- Is there any possible strategies needed to enhance Nigeria stock exchange market?
- Does the mission of the Nigeria stock exchange promote increased capital information in Nigeria between 1999 to 2021?
- What is the contribution of the stock exchange market to the development of industrial capabilities and economic growth in Nigeria between 1999 to 2021?
- What is the relevance of stock exchange market in the mobilization of investment capital?
1.6 Research Hypothesis
In order to pursue the objective of this study, the following generalized statements have been designed to guide and aids in obtaining the result for the experiment to be conducted. For this work, the null hypothesis will be represented with H0 while the alternative hypothesis will be represented with hypothesis H1.
Hypothesis One
- H0: The mission of the Nigeria stock exchange does not promote increased capital information in Nigeria between 1999 to 2021
- H1: The mission of the Nigeria stock exchange promotes increased capital information in Nigeria between 1999 to 2021
Hypothesis Two
- H0: There are no possible strategies needed to enhance Nigeria stock exchange market
- H1: There are possible strategies needed to enhance Nigeria stock exchange market
1.7 Significance of Study
Due to the fact that there are no viable equity markets, the capital structure of firms are generally characterized by heavy reliance on international finance and bank borrowings which tend to raise debt/ equity ratios. Thus, the development of an active market for stocks could provide an alternative to the banking system for both savers and users of funds.
There are a lot of studies about the connection between stock prices fluctuations and economic growth as well as other economic variables which have detected that changes in stock prices reflect real economic situation. Economic growth through the changes in levels of real economic activities affects profitability and activity of firms. As a result, with changes in profitability prospects, expected earnings and dividends of shares, stock prices fluctuate (Fama, 1990; Ferson and Harvey, 1993; Cheung and Ng, 1998; Mauro, 2003; Ritter, 2004; Liu and Sinclair, 2008; Shahbaz et al., 2008).
On the other hand, other studies have examined the impact of stock prices on macroeconomics indicators. According to the results of these investigations share prices fluctuations play a role in directing economic activities in the medium and long term. Stock prices reflect the expectation of public towards the future economic activity. In other words, the stock exchange market is forward-looking and stock prices reflect anticipations about future economic activity. This work represents an attempt to close the gap between these different literatures, by examining the impact of stock exchange market performance on the growth of Nigeria economy. This study will be of immense benefit to other researchers who intend to know more on this study and can also be used by non-researchers to build more on their research work. This study contributes to knowledge and could serve as a guide for other study.
1.8 Scope of the Study
This study appraises the Impact of the Nigerian Stock Exchange on Economic Growth in Nigeria between 1999 to 2021. The scope of the study is based on the Nigerian stock exchange from the key sectors of the economy.
1.9 Limitations of the Study
During the course of this study, many things militated against its completion, some of which are:
- Time Constraint: The time frame given to accomplish this project was very short due to school academic calendar and it was carried out under pressure which made the researcher not to implement some necessary features.
- Research material: availability of research material is a major setback to the scope of the study.
- Frequent power failure: This made the researcher append more money on fuel to ensure sustainable power.
- Financial Constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.10 Operational Definitions of Terms
Some terms concepts have various meanings depending on whom or it is used. The 1/ones in this study are in the following context.
Stock exchange market: It is used interchangeable with the capital market, which is integral part of the country financial system where many securities are bought and solid.
Share Holder: A shareholder is one who holds a share certificate that has to share is also called or referred as stock holder.
Speculation: It is the buying and selling of goods with the objects of gaining from differences in prices.
Stage: One who speculates on the stock exchange by subscribing to new issue with the hope of selling his allotment at a profit as deal in the securities commences.
Bear: An individual who sells securities he does not own, or which he does not want to deliver, in the hope that they can be repurchased at a profit before delivery has to be made.
Common Stock: It is a terms for equity or ordinary share.
Bid: The process at which a jobber or investor is prepared by stock or shares, when a prices is quoted as bid” It generally means that there are more, buyers than sellers.
Broker: A intermediary who buys or sells share can behalf of a client.
Double Option: The right to buy securities at an agreed price within an agreed period usually not more than three months.
Primary Market: It is where securities are offered for sale to the public from the issuer for the first time.
Secondary Market: It is where people investments stores can buy or sell previously quoted securities and get their money back for alternative uses.
