THE IMPACT OF STOCK EXCHANGE ON CAPITAL ACCUMULATION IN NIGERIA: AN EMPIRICAL ANALYSIS 1980-2010
ABSTRACT
This study examines the stock exchange and capital accumulation in Nigeria empirically between 1980 and 2010. Nigeria is a country abundant in both natural and human resources. However, every Nigerian situation would recognize the negative factors impeding economic growth progress, including a lack of public and private investment as a result of the government’s lack of comprehensive policies to reverse the trend. The stock exchange market is the primary engine that propels any economy toward growth and development. The stock exchange market is a common feature of a modern economy, and it is reputed to perform some necessary functions that promote the economy’s growth and development. To Co-integration was used to achieve this goal using data from 1980 to 2010. It was to estimate the impact of the stock exchange market on capital accumulation. Except for market capitalization and exchange rate, the results showed a positive relationship between Gross capital formation and all stock exchange market variables used. With 81.890 percent R2 and 73.871 percent R2, and DW- statistics of 2.0436, the model adequately explained capital accumulation in Nigeria from 1980 to 2010. As a result, the independent variables explain 73.871 percent of the variation in economic activity growth. The study’s findings, which established a positive relationship between the stock exchange market and capital accumulation, point to the pursuit of of policies geared towards rapid development of the stock exchange market. Furthermore, all sectors of the economy should work together to reap the full benefits of the link between the stock exchange and capital accumulation in Nigeria.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The stock exchange market, as an extension of the capital market, is an important institution in long-term financial intermediation.
Because of the tremendous opportunities that result from its activities, the stock exchange, as an important component of the capital market, plays a significant role in the capital formation process and enhances developmental growth. The Nigerian stock exchange is expected to mobilize long-term savings to finance long-term investment by providing capital to entrepreneurs in the form of equity. The stock exchange is more than just a financial institution; it is the very center of the capital market, around which all capital market activity revolves.
Capital accumulation involves both a net addition and a redistribution of wealth, raising the question of who benefits the most from it. When a society produces more wealth than it had previously, the total stock of wealth increases. However, if some accumulate capital solely at the expense of others, wealth is simply transferred. It is possible that a few organizations accumulate capital and become richer, even if society’s total stock of wealth decreases.
The stock market, in particular, measures the value of a company’s capital stock. The value is the product of the installed capital price and the amount of capital. The task at hand is to infer the amount of capital and thus the amount of capital accumulation from the observed values of securities. In the simplest case, without adjustment costs, capital goods markets observe and report the price of capital. Also included is the cost of installed capital. The amount of capital is the value observed in the stock market.
There is an argument that, despite policies instituted by the government at various times, the securities market in developing countries in general has failed to meet expectations in terms of the extent and degree of capital mobilization for economic growth and development. The Nigeria stock exchange’s performance over the nearly 30 years of its existence has been relatively poor when compared to other stock exchanges of similar age in some developing countries.
The stock exchange market has been tasked with playing an important role in promoting capital accumulation. There is now a call for better corporate governance in order to protect the interests of shareholders. Shareholders’ actions lead to stock market developments and capital accumulation. The avowed objective of government concern for a proper legal environment in the stock market is promotion of growth through capital accumulation.
A comparison of the Nigerian stock market with the stock markets of Korea, Malaysia, and India based on indicators such as market capitalization as a percentage of GDP and the value of stocks traded reveals the Nigerian capital market’s bleak state. Except for Nigeria, market capitalization as a percentage of GDP increased dramatically between 1983 and 1999. Ogwu Mike and Omole (2004). Only Nigeria increased this ratio by less than a percentage point.
Other indicators include the number of publicly traded companies and the value of stock traded. The relative poor performance of the Nigerian stock exchange market is also indicated.
The relationship between the stock market and capital accumulation has frequently sparked heated debate and ambiguity, because it could refer to * A net addition to existing wealth * A redistribution of wealth
1.2 STATEMENT OF THE PROBLEM
The major issue in evaluating the Nigeria stock exchange market is that of the capital and money markets, which comprise the financial institution. The complexity of this understanding of the operational system, the link between capital and other specialized institutions, and the eventual impact of capital market operations on the nation’s economy have all been considered.
In essence, this study identified the problem as I a lack of sufficient literature covering the Nigerian capital market and capital securities.
(ii) Public ignorance of the existence and benefits of the Nigeria stock exchange, with emphasis on the impact of this ignorance in terms of missed investment opportunities.
(iii) The major issue in the stock market is highly fluctuating stock prices that are far above the possible range. Changes in the real value of the companies represented by the stock.
(iv) The internet problem in the stock market is based on the fact that information on the internet can be false and misleading, causing stock prices to rise or fall. Furthermore, illegal individuals inflate the price of a stock for their own gain.
1.3 OBJECTIVES OF THE STUDY
Looking deeply into the Nigerian stock exchange market, the study will basically provide an organized, fair, and efficient market for trading securities and secure a transparent, strong, and safe environment for trading securities in order to deepen trust in the stock market, and this study will basically to I Creating an attractive and safe environment for investment.
(ii) Creating procedures and methods for trading securities on the stock exchange.
(iii) Complying with the most recent international standards.
(iv) Disseminating trading information to as many dealers and interested parties as possible.
(v) Raise public awareness of all segments of society, with a special focus on securities dealers.
(vi) Transparency and credibility in stock market transactions.
(vii) Calculate the relationship between stock exchange growth and
1.4 HYPOTHESIS OF THE STUDY
There is a positive relationship between market capitalization and capital accumulation, as well as between portfolio investment and capital accumulation.
There is a positive relationship between the exchange rate and capital accumulation, as well as a positive relationship between the RGDP (Real Gross Domestic Product).
1.5 SIGNIFICANCE OF THE STUDY
Individuals, entrepreneurs, and the general public will all benefit greatly from the research. Because the findings of this study will be very instructive in terms of their impact on the Nigerian stock exchange and capital accumulation.
The findings of this study will be extremely valuable to the government because they affect the development and growth of the economy, which in turn affects the government’s monetary policy.
1.6 SCOPE OF THE STUDY
Government development stock and industrial securities, which include equities and preferred stock, are the two broad categories of securities available on the Nigeria stock exchange. However, because we are dealing with the stock exchange and capital accumulation, we will only be concerned with stock market size and capital stock in this study. The time period and topic are chosen to keep the research as current and relevant as possible. The study will also examine the performance of the stock exchange from 1980 to 2008 and the impact on capital accumulation.
1.7 METHODOLOGY OF THE STUDY
The research work will use theoretical exposition and secondary data analysis to accomplish this.
The data for this study would be gathered primarily from secondary sources, specifically Central Bank of Nigeria (CBN) publications (such as the CBN statistical bulletin, CBN reports, and statement of accounts) and other published works.
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