AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET (A CASE STUDY OF NIGERIAN STOCK EXCHANGE)
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AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN
DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET (A CASE STUDY OF NIGERIAN
STOCK EXCHANGE)
ABSTRACT
The
Nigerian Capital Market is indeed a tool for economic growth and development.
Many researchers are of the opinion that the market has done well, especially
in terms of return on investments. If this is true, the impact is supposed to
be shown on the economy of the nation. The aim of the research is therefore to
evaluate the impact of regulatory bodies in developing the capital market with
particular reference to the Nigerian Stock Exchange. Data were gathered on the
activities of the Nigerian capital market for a period of 5 years (i.e. 2005 –
2010) through studying existing documents and the administration of
questionnaires. Descriptive research methods were used. The analysis of data
was based on chi-square and the use of table and simple percentages. The
findings of the study revealed that the impact of the regulatory bodies on the
capital market has enhanced the listing of more companies on the floor of the
Nigerian Exchange. Finally, it is recommended, among others that less stringent
listing requirement be employed by the Exchange to allow more participation of
intending participants in the market.
TABLE OF CONTENTS
Title
Page - - - - - - - - - i
Declaration - - - - - - - - ii
Approval
Page - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Abstract - - - - - - - - - vii
Table
of Contents - - - - - - - viii
CHAPTER ONE
1.0 Introduction - - - - - - - 1
1.1 Background of the Study - - - - - 1
1.2 Statement of the Problems - - - - - 3
1.3 Objectives of the Study - - - - - 4
1.4 Research Hypothesis/Questions - - - - 5
1.5 Significance of the Study - - - - - 5
1.6 Scope of the Study - - - - - - 6
1.7 Historical Background of the Case Study - - 7
1.8 Definition of Terms - - - - - - 11
CHAPTER TWO
2.0 Introduction - - - - - - - 13
2.1 Relevant Concepts and Theories - - - - 27
2.2 Sub Heads - - - - - - - - 27
CHAPTER THREE
3.0 Introduction - - - - - - - 30
3.1 Population and Sample Size - - - - 30
3.2 Sampling Techniques - - - - - - 31
3.4 Sources and Method of Data Collection - - - 32
3.5 Methods of Data Analysis - - - - - 33
3.6 Justification for the Choice - - - - - 33
CHAPTER FOUR
4.0 Introduction - - - - - - - 36
4.1 Data Presentation - - - - - - 36
4.2 Data Analysis and Interpretation - - - 37
4.3 Testing of Hypothesis/Questions and
Interpretation 43
CHAPTER FIVE
5.1 Summary - - - - - - - - 46
5.2 Limitations of the Study - - - - - 48
5.3 Conclusion - - - - - - - - 49
5.4 Recommendations - - - - - - 50
Bibliography - - - - - - - 52
Appendix - - - - - - - - 54
CHAPTER
ONE
INTRODUCTION
1.1 THE
BACKGROUNG OF THE STUDY
The
economic growth and development of any economy largely depend on the ability to
raise capital through the capital market. The Nigerian stock exchange is a
place where the enormous capital which is required to operate the huge
industrial and commercial cooperation today can be raised.
Osaze
(1991) asserted that the emergence of the institution of the Nigerian stock
exchange is a spontaneous reaction of the enterprise economies. The
significance reaction of the stock exchange in an economy such as our own
cannot be over emphasized, for it is the bed-rock of large scale investment.
The Nigerian government hopes to create an economy which would bring about the
best in its citizens, compete effectively in the global market and improves the
standard of living of its people. An economy where hard work, accountability
and transparency would be the cardinal principle that both foreign and local
investors would be proud to participate in. once investors looses confidence as
a result of market abuse, the growth and development of capital market would be
adversely affected and considerable effort would be required to restore
confidence.
To
be globally attractive and completive, the stock market must be seen to imbibe
practices which are globally acceptable. For this reason government tries to
put in place adequate regulatory mechanism to prevent or at least minimize
market abuse in order to uphold the integrity and confidence that is very
essential for the development of a viable and sustainable capital market.
The
Nigerian stock exchange is the centre point of the Nigerian capital market.
However, the Securities and Exchange Commission (SEC) and the central bank of
Nigeria (CBN) are the apex regulatory bodies to the capital market. The
tendency of our financial structure has been to channel loans to industries of
the past rather than the future (i.e. the rich third world countries). This has
become invariably clear that even those external financiers are eroding, thus
the need for our own structure in Nigeria to meet up with the excess demand for
capital to finance gigantic projects and businesses.
The
international organization such as the world bank group are very conscious of
the high risk involved in venture of loan given to third world countries which
will eventually evade payment of such loans.
There
is every need to meet such demand and requirements for smooth and long lasting
system for sourcing of such requisite finance.
The
study therefore examines in order to evaluate what regulatory bodies have done
to ensure the development and sustenance of a viable capital market that will
meet global challenges.
1.2 STATEMENT
OF THE PROBLEM
For
an emerging market like Nigeria, the stringent control measures put in place to
regulate the activities of the Nigerian stock exchange for the smooth running is
a very huge problem that is hindering the development of the market. The
researcher hopes to seek for solution(s).
Regulators
in our emerging market are also faced with a problem of ignorance, Nigeria with
a population of 160 million, and half of the populations are ignorant about the
investment opportunities that abound in the capital market. This is also a
monumental problem that the researcher hopes to proffer solution to. Only if
solutions to the stated problem are provided that the research work will be
significant
1.3 THE
OBJECTIVE OF THE STUDY
The
objective of this study is to seek for the means of relaxing the stringent
control measure put in place to regulate the activities of the Nigeria stock
exchange to make it run smoothly and effectively.
To
educate and sensitize Nigerians who are ignorant of the investment
opportunities that are available in the Nigeria capital market. If about 160
million or half of the population invest in the capital market that will bring
about a viable development and sustained growth in the Nigerian capital market.
1.4 RESEARCH
HYPOTHES/QUESTIONS
Hypothesis
is the method used by the researcher to test and prove guess statement in
connection with the problem of the research being carried out in this study to
confirm on the hypothesis made.
NULL HYPOTHESIS Ho-
the impact of the regulatory bodies on the Nigerian capital market has not
enhanced the listing of more companies on the floor of the Nigerian stock
exchange.
ALTERNATIVE HYPOTHESIS
Hi- the impact of regulatory bodies on the Nigerian capital market has enhanced
the listing of more companies on the floor of the Nigeria stock exchange.
1.5 THE
SIGNIFICANCE OF THE STUDY
The
significance of this study cannot be over-emphasized. The research will
contribute to the existing body of knowledge in the capital market
administration; it will help the director general of the Nigerian stock
exchange and his or her management team by exposing some means through which
they can improve their performance towards meaningful achievement therefore,
this study will have the following significance, the study will evaluate the
impact of the regulatory bodies in developing a viable and sustainable capital
market. Whether it has helped increased the aggregate of listing of more
companies on the floor of the Nigerian stock exchange or not. When it is found
out to be negative solution will be suggested.
In
this regards, the research work will be significant to the following:-
1.
The director general and his or her
management team.
2.
The Nigerian stock exchange (NSE)
3.
Academicians. It will serve the
purpose of arousing deep thought and genuine interest on the subject matter for
further research.
4.
The stock market operators.
5.
The public as well need the knowledge
to be able to assess the performance of the stock market
6.
Government, regulatory bodies such as
the Securities and Exchange Commission and the Central Bank on Nigeria
7.
Non governmental organization(NGOs)
8.
Financial analysts
9.
Foreign and local investors
10.
The general public
1.6 THE
SCOPE OF THE STUDY
The
scope of this research is limited to Nigerian Stock Exchange. The researcher
will focus on the evaluation of the impact of regulatory bodies in developing a
viable and sustainable capital market in Nigeria. In essence, the researcher
will look at the regulatory frame work put in place to ensure the development
of an effective and efficient capital market. Between 2005-2010
1.7 HISTORICAL
BACKGROUNG OF THE CASE STUDY
The
Lagos stock exchange (LSE) established in 1961 became the Nigerian stock
exchange (NSE) in 1977 as the hub of the capital market activities where media
and long term financial securities are traded. NSE provide avenue where by
sellers and buyers exchange securities at mutually satisfactory prices thereby
creating liquidity through its price mechanism. Initially NSE had a set of
requirement to be fulfilled before a company is enlisted in the stock exchange
market, but in 1985 another requirement for enlistment were issued to allow
smaller and particularly wholly individual enterprise to be registered with the
stock exchange. Securities that met the initial requirement are referred to as
first-tier securities, whereas securities that could meet only the next set of
requirement are referred to as second-tier securities. As such there are two types
of securities market in NSE, First-tier securities market (FSM) and second-tier
securities market (SSM).
There
was an attempt for establishment of Abuja stock Exchange (ASE) apart from the
Nigerian stock exchange (NSE) which is to be named as Lagos stock exchange
(LSE) but the federal government of Nigeria later changed the ASE to Abuja
commodity Exchange in 2001 however, the attempt for establishment of ASE was
done in order to enhance the efficiency of the stock market activities in the
country through healthy competition by the two stock exchanges instead of
monopoly by a single institution.
ISSUING HOUSE:
issuing houses are institution that advise assist and sometimes undertake the
issuance of securities for companies that want to raise funds in the capital
market in Nigeria issuing house are primarily merchant bank and stock brokerage
firms which set some requirement for a company before accepting to package and
act as agent for the company in the said issue. Some of these requirements
include level of growth in profitability adequacy of working capital, spread of
risk of the venture, size of company and soundness of management decision.
SHARE REGISTRARS:
A share registrar could be the secretary of a listed company or an institution,
which maintains the register of shareholders for a company that has raise funds
from the capital market. The registrar is responsible for issuing share
certificate to the shareholders. In Nigeria the major share registrars are
three (3) big banks in the country. (UBA, FBN and Union Bank). Stock brokerage
firms and some trading companies.
UNIT TRUSTS:
Unit trusts are new institutions arrangement in Nigeria for mobilizing the
financial resources of small savers for investments in the capital market and
managing such resources to achieve maximum return possible with minimum risk
through efficient portfolio diversification. Companies and Allied Matters
Decrees of 1990 provides the legal framework for establishment of unit trusts
in Nigeria. These trusts pool the funds of the public by selling the shares of
the trusts and investing the funds mobilized in the capital market securities.
The holders of trusts shares are given dividend or capital gain on pro-rate
basis.
STOCK BROKERAGE FIRMS:
A stockbroker is a firm or an individual who buys and sells securities on
behalf of investors on the floor of the Stock Exchange for a Commission called
brokerage. Issuing houses originate and sometimes underwrite securities issues,
stockbroker distribute and market securities. Issuing houses are also stock
brokers in Nigeria and some affiliate companies of merchant banks.
1.8 DEFINITION
OF TERMS
Private Placement:
One of the pre-requisite for a company to be listed on the NSE is for it to do
private placement. This is done in private without advertisement where a
particular set of investors not necessarily the public is informed about the
offer and invited to invest in a company.
Initial Public Offer (IPO):
An IPO is when a company is offering its shares for sale for the first time to
the general public. Many companies e.g. Zenith Bank, NAHCO, Dangote Sugar
Refinery Plc etc have had IPOs in the past.
Right Issue:
This occurs when a company wants to raise money, but only through existing
shareholders of the company. Shares are allocated to already existing
investors.
Bears and Bulls:
This is an investment jargon used to describe the market movement. When the
market is bearish it means most stock prices fell, but a bullish market is one
in which most stock prices are going up.
Market Capitalization: The
market capitalization of a company is what it is worth on the Stock Exchange.
It is an easy way to evaluate the worth of a company. It is simply the market
price of the stock multiplied by the overall issued shares of the company.
Blue Chip Company:
These are shares of companies with long track record of good performance,
stability and earnings.
Listing: A
company is said to be listed when its shares are quoted on the floor of the
stock exchange. This enables the shares of the company to be easily traded on
the stock market.
Call Price:
The price at which a security with a call provision can be repurchased by the
issuer prior to the security maturity period.
Net Asset Acquired:
These are proportions of shares in nominal value and the reserves as at the
date of acquisition of the company.
Minority Interest: These
are the net assets (i.e. shares capital and reserves due to the other
shareholders in the company other than the holding company.)
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