CHAPTER ONE INTRODUCTION 1.1 Background to the Study Capital market is an essential agent of economic growth because of its ability to facilitate and mobilize savings and investment (Olawoye, 2011). The ability to mobilize and invest lies in the nation’s strength in effective resource mobilization which enables internal wealth generation and domestic savings as well as inflows of foreign capital. Osaze (2011), posited that the origin of the Nigerian Capital Market dates back to the colonial era, in the bid to raise funds for running the local administration on the realization that the internally generated funds from marketing agricultural produce and solid mineral were deficient. This they did through reforming the revenue mobilization, taxation and other payments systems (Olawoye, 2011). The Nigerian capital market has continued to play its traditional role of mobilizing medium tolong-term funds for development purposes. The Securities and Exchange Commission (SEC) is the regulatory authority of the market, and the operational institutions are the Nigerian Stock Exchange, the issuing houses and the stock broking firms. The capital market consists of the primary market for new issues of securities and the secondary market for trading in existing securities (Oluwatosin, Adekanye and Yusuf 2013) The Securities and Exchange Commission (SEC) was established in 1979 through the SEC Act 1979, to regulate the capital market, but it commenced actual operation in 1980. It took over regulatory functions from Capital Issues Commission, which was established in 1973. Since then, various forms of financial instruments have been issued in the capital market by new and existing business to finance product development, new projects or general business expansion. The Nigerian Capital market activities have been growing at a healthy rate in relation to its role in stimulating economic growth. The Volume and Value of traded securities between 2007 and 2010 grew in excess of 6.3% and 3.9% respectively. Securities listed in the exchange rose from 288 in 2005 to 294 in 2010 while the total market capitalization for the period declined by about 11.4%. The fall in Market Capitalization was attributed to the price losses and the global economic crisis. In fact, on annual basis, the market grew by 74% in 2007, dipped by 45% and 33.7% in 2008 and 2009 respectively, grew by 18.9% in 2010, dipped again in 2011 by 16.3% before recovering by an estimated 33% in 2012 (Egene, 2012). The All Share Index also demonstrated a decline of about 29.8% within the period (CBN, 2010). The primary function of the capital market is to enable funds to be effectively allocated from the surplus units in the economy to the deficit units for productive investments. Indeed, with such mechanism, corporate financial managers have access to a wide range of sources of finance and instruments (Okoye and Nwisienyi 2013). The Nigerian capital market provides the necessary lubricant that keeps turning the wheel of the economy. It is critical in the mobilization of savings to profitable self-liquidating investment. It not only provides the funds required for investments but also efficiently allocates these funds to projects of best returns to fund owners (Donwa and Odia, 2010). 1.2 Statement of Problem In recent time, Nigeria is in recession and has been experiencing a skyrocket in the increase of prices in virtually all its consumption which also includes the locally produced goods due to increase in FOREX trading (Adeoye 2015; and Saadu, 2016). This is so because virtually 90% of our consumption is based on importation, neglecting our own manufacturing sectors. Even those that produce in Nigeria have to import raw materials from abroad making our capital market redundant. It is widely believed in some quarters of the economy that the Nigerian capital market is underdeveloped and has not shown substantial growth since independence (Adeoye, 2015). As a result, it is necessary to evaluate the impact of Nigerian capital market on economy growth of Nigeria. 1.3 Research Questions In the light of the above problem this study posed the following questions. i. What impact has market capitalization on the growth of Nigerian economy? ii. What impact has market index (all share index) on the growth of Nigerian economy? iii. What impact has traded volume of transaction of the stock market on the economic growth in Nigeria? 1.4 Objectives of the Study The main objective of the study is to examine the impact of capital market performance on economic growth in Nigeria. However, the specific objectives include: i. To evaluate the impact of market capitalization on the economic growth in Nigeria. ii. To examine the impact of market index (all share index) on the economic growth in Nigeria. iii. To evaluate the impact of traded volume of transaction of the stock market on the economic growth in Nigeria 1.5 Research Hypothesis Based on the research questions, the following research hypotheses were formulated: H01: Market capitalization has no significant effect on the economic growth of Nigeria. H02: All share index has no significant effect on the economic growth of Nigeria. H03: Traded volume of transaction of the stock market has no significant effect on the economic growth of Nigeria. 1.6 Significance of the Study The study explored the capital market performance and its effect on Nigeria economy. The nature of this research work is based on expo facto research methods to measure the influence of capital market on the economy. The research work will be relevant to policy makers as critical decision formulation from this research work shall be put into general practice. It is hoped that the exploration of this market will provide a broad view of the operations of the capital market enlightening policy makers on ways to improve operations and activities of the capital market. Also, students and researchers in Nigeria will also find this study useful as it will contribute to the existing body of knowledge in research. It is therefore, hoped that this study will stimulate further research on the topic. 1.7 Scope of the Study This research work focuses on the effect on the effect of capital market on the economic growth of Nigeria between 1985-2020. 1.8 Definition of the Term Stockbrokers: is a licensed member of the Nigeria Stock Exchange. Stockbrokers can be firm or an individual who buys and sells securities on behalf of the investors of a commission. Issuing House: This basically arranges the issuance of securities to the public or government. Prime Market: is regarded as the original or the main market where small companies operate. Second Tier Securities Market: This is a segment in the hope of reselling them where the price rises. Securities: is something of value which borrowers is prepared to have with the band as the loan contracted. Shares: it presents evidence of investment interest as a person in a company and government establishment. 1.9 Plan of the Study This study consist five chapters Chapter One: contains introduction, statement of the problem, research question, and objective of the study, justification of the study, research hypothesis, definition of key term, plan of the study. Chapter Two: Literature review, historical background of the study in Nigeria stock exchange, the role of capital market, evidence of benefit of stock exchange market, capital market and Nigeria economy Pre-Deregulation (a 1986 to date), corporate governance in stock exchange, facilitation company growth in Nigeria stock exchange. Chapter Three: Research methodology, the study population, sample size and sampling, techniques, data sources, techniques of analysis Chapter Four: Data presentation analysis, this research study would be limited to the Lagos stock exchange. The data to be use will be base on primary sources of data which would include personal interviews, library work and questionnaires. Chapter Five: finding, summary, conclusion on Recommendation based on the analysis of the table presented it is observe.
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