An Evaluation of Shares And Securities Dealing in The Nigeria Capital Market (A Case Study of Nigeria Stock Exchange From 2012-2016)

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The capital market plays a vital role in promoting economic growth and development. It does this by mobilizing surplus funds from individuals and institutions for productive investment (Osaze, 2007). Consequently, it serves as a powerful catalyst for national development by channeling resources into profitable ventures. Over time, many countries have realized that a strong capital market is essential for building national wealth (Okonkwo, 2019). Therefore, they continue to develop efficient systems, create diverse financial instruments, and establish dynamic institutions to support economic stability.

The capital market assists in transferring funds from surplus units, known as savers, to deficit units, also known as investors (Ewah, Esang & Bassey, 2009). In this process, several institutions perform specific roles. These include the stock exchange, issuing houses, stockbrokers, share registrars, merchant banks, insurance companies, pension funds, and the Securities and Exchange Commission (SEC). Although these institutions contribute to the transfer of funds, they are not located in one place. Hence, the capital market can be described as a network of institutions and mechanisms through which funds are pooled and made available to businesses, governments, and individuals. It also facilitates the transfer of already existing financial instruments (Dougall & Guramnitz, 1975).

Unlike the money market, which focuses on short-term funds, the capital market provides medium and long-term financing for individuals, corporations, and governments (Akingbohungbe, 1996). Furthermore, capital markets are typically well-regulated to ensure stability, transparency, and investor confidence. The market operators, such as issuing houses, stockbrokers, registrars, and investment advisers, play essential roles in maintaining efficiency (Ologunde, Elumilade & Asaolu, 2006). In addition, financial intermediaries like banks and unit trusts assist in the movement of funds across the market (Osamwonyi & Kasimu, 2013).

Regulation remains essential for the orderly functioning of any market. Without it, confusion, disorder, and loss of financial confidence may arise, leading to economic instability (Oke, 2012). For this reason, regulatory agencies are established to supervise market operations. In Nigeria, the key regulatory bodies are the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE) (CBN, 2020).

The SEC is a statutory body at the apex of the capital market. Meanwhile, the NSE serves as a self-regulatory organization under the supervision of the SEC. However, it operates with delegated powers to ensure the smooth functioning of the market. The exchange provides facilities for trading in secondary securities, thereby enhancing liquidity and enabling easy transfer of investments. Additionally, it creates rules and regulations to guide professional conduct among its members (NSE, 2021).

1.2 Statement of the Problem

Since the establishment of the Nigerian capital market, it has experienced several changes, growth, and challenges (Ewah et al., 2009). Despite this progress, the market continues to face structural and regulatory issues. For instance, the low participation of small and medium-scale enterprises, weak regulatory enforcement, and poor investor confidence remain serious concerns (Okereke-Onyiuke, 2010). Therefore, this study aims to examine the major developments that have occurred in the Nigerian capital market and assess their impact on its overall performance.

1.3 Objectives of the Study

The main objective of this study is to assess the Nigerian capital market and its regulatory framework. Specifically, the study seeks to:

1. Compare the Nigerian capital market with its foreign counterparts.

2. Examine the distinct roles of the Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (NSE).

3. Assess the effect of deregulation on the Nigerian capital market.

4. Recommend effective methods to improve the performance of the Nigerian capital market.

1.4 Research Questions

The study will address the following questions:

1. What are the main roles of the capital market?

2. What is the capital market?

3. What are the major functions of the capital market?

4. What are the problems facing the Nigerian Stock Exchange in the evaluation of shares and securities?

1.5 Research Hypotheses

Null Hypothesis (H₀): The capital market has no significant effect on shares and securities in the Nigerian Stock Exchange.

Alternative Hypothesis (H₁): The capital market has a significant effect on shares and securities in the Nigerian Stock Exchange.

1.6 Significance of the Study

This study provides valuable insights into why many enterprises are yet to be listed on the Nigerian Stock Exchange (Afolabi, 2015). Moreover, it highlights the potential benefits of a well-functioning capital market for different stakeholders, including government, private sector organizations, and investors.

The capital market contributes to:

1. Wealth creation (Osaze, 2007).

2. Providing an alternative source of income for the government.

3. Securing retirement funds for the elderly.

4. Reducing income tax burdens.

5. Encouraging capital appreciation.

6. Granting shareholders voting rights during annual general meetings.

In addition, this research offers practical recommendations to improve the efficiency and performance of the Nigerian capital market. Therefore, it is expected to benefit policy makers, investors, and academics interested in financial market development.

1.7 Scope and Limitations of the Study

The study focuses on the Nigerian capital market, with particular emphasis on the Nigerian Stock Exchange (NSE) and the Securities and Exchange Commission (SEC). Moreover, it examines government policies that promote capital market growth and evaluates how they affect the trading of shares and securities (CBN, 2020).

For this purpose, the research explores stock pricing, the structure of the NSE, and the role of regulatory agencies in maintaining transparency. However, the study faced certain limitations. For instance, time constraints restricted the collection of comprehensive data. Additionally, Nigeria’s poor data management system made it difficult to access reliable and up-to-date information. As a result, the researcher had to consult multiple sources, which required significant effort and resources (Oke, 2012).

1.8 Organization of the Study

This research is structured as follows:

• Chapter One: Introduction

• Chapter Two: Literature Review

• Chapter Three: Research Methodology

• Chapter Four: Data Presentation and Analysis

• Chapter Five: Findings, Summary, Conclusion, and Recommendations

1.9 Definition of Terms

Share: A share is a unit of ownership representing a portion of a company’s capital. The share certificate serves as evidence that the holder owns the stated number of shares (Pandey, 2015).

Securities: Securities are legal documents or certificates that show ownership of financial assets such as stocks and bonds (Osaze, 2007).

Stock: Stock refers to the total shares into which a company’s capital is divided (Afolabi, 2015).