AN APPRAISAL OF STOCK PRICING IN THE NIGERIAN CAPITAL MARKET (A CASE STUDY OF NIGERIA STOCK EXCHANGE (NSE)
ABSTRACT
The price of a company’s stock is an indication of its performance. When stocks are properly priced, investors can invest in the most profitable companies based on their stock prices.
In light of the foregoing, the researcher has decided to assess the effectiveness of stock pricing on the Nigerian Stock Exchange.
In doing so, the researcher used historical and descriptive research methods. Data was gathered through interviews, questionnaires, and journals. The chi-square data analysis techniques were used in conjunction with percentages and tables.
According to the findings of the analysis, stocks on the Nigerian Stock Exchange were efficiently priced.
The findings show that the Nigerian Stock Exchange is dealing with a number of issues, including the retention attitude of Nigerian investors, an underdeveloped financial system, and the NSE’s oligopoly structure, which does not bode well for competition and development.
To name a few, recommendations include the need for the government to accelerate its current privatization process and a significant reduction in corporate tax rates on publicly traded companies, which would increase public confidence in the stock market.
TABLE OF MATERIALS
CHAPITRE ONE
INTRODUCTION
1.1 High-Level Overview
1.2 Description of the Issues
1.3 Scope of the Research
1.4 Importance of the Research
1.5 Purposes of the Research
1.6 Theoretical Framework
1.7.1 Research Questions
1.8 Definitions of Terms
1.9 Course of Study
CHAPITRE TWO
REVIEW OF LITERATURE
2.1 General Information
2.2 The Nigerian Capital Market’s History
2.3 Capital Market Structure in Nigeria
2.3 The Nigerian Capital Market’s Regulatory Environment
2.4 Security and Exchange Commission
2.5 Functions of Nigeria’s Capital Market
2.6 Inclusion on the Nigerian Stock Exchange
2.8 Conclusion
References
CHAPITRE THREE
DESIGN / METHODOLOGY OF RESEARCH
3.1.1 Introduction
3.2 Research Techniques
3.3 Data Collection Techniques
3.4 Data Analysis Methodologies
3.5 Research Methodology
3.6 Justification of Methods and Techniques Employed
3.7 Conclusion
CHAPITRE FOUR
DATA PRESENTATION AND ANALYSIS
4.1.1 Introduction
4.2 Nigeria Stock Exchange Organization and Operations
4.3 Securities Pricing Methods on the Nigerian Stock Exchange
The Nigerian Stock Exchange’s Pricing Efficiency
4.4.1 Questionnaire-Based Analysis
4.4.2 Profitability Analysis of Selected Companies
4.4.3 Selected Quoted Companies’ Share Prices and Profit After Tax
4.4.4 Hypothesis Testing
4.5 Issues with the Nigerian Stock Exchange
4.6 Conclusion
CHAPITRE FIVE
RECOMMENDATION, CONCLUSION, AND SUMMARY
5.1 Summary of Findings
5.2 The Study’s Limitations
5.3 Final Thoughts
Recommendations (5.4)
Bibliography
CHAPITRE ONE
INTRODUCTION
1.10 GENERAL SUMMARY
To stay afloat in today’s world of globalization, deregulation, and market liberalization, any economy needs an efficient financial system to direct the allocation of its resources. Capital markets and institutions, of which the stock exchange is an integral part, have become critical in a dynamic economy like Nigeria.
The capital market is a subset of the financial system that promotes economic growth. This is accomplished by efficiently channeling funds from investors into economically productive sectors of the economy. It allows the government and businesses to raise long-term funds for their activities.
The capital market is made up of a network of institutions and individuals, including regulators and market participants, who work together to keep the market running smoothly. To put it another way, the capital market is made up of fund providers (investors), fund users (companies and governments), intermediaries (stock brokers, issuing houses, registrars), and regulators (SEC, the Nigerian Stock Exchange and Central Bank of Nigeria).
The Nigerian capital market is divided into two parts: the primary and secondary markets. The primary market is where securities are first sold to investors by the issuing corporation or government. Few investors can be persuaded to tie up their funds indefinitely if the issuers use the funds raised to expand production, build infrastructure, and so on.
As a result, securities are usually negotiable, allowing the initial buyers to re-offer the securities to any interested party at any mutually acceptable price. It is thus a function of the securities exchange to provide a forum in which such mutually acceptable prices can be determined. In this regard, it is critical to examine the Nigerian capital market’s stock pricing function.
1.11 OUTLINE OF THE PROBLEMS
Because both institutional and individual investors are putting their money at risk in order to earn a reasonable return on securities acquired in companies, it is necessary to know whether the shares and securities acquired in companies listed on the Nigerian Stock Exchange are property priced. However, there is a strong need to critically consider the following issues in relation to the research topic:
a. A lack of information from publicly traded companies
b. Lack of understanding of the stock exchange’s operations and functions.
c. Difficulty obtaining a quotation on the stock exchange
d. A lack of understanding of how shares and securities are priced on the Nigerian Stock Exchange.
1.12 STUDY OBJECTIVES
This study focuses on the pricing function of the Nigerian capital market, as the title suggests.
As a result, the research is limited to the history, operations, and functions of the Nigerian capital market in relation to stock pricing.
The Nigerian Stock Exchange (NSE) will be used as a case study in this regard. It would cover the years 1996 to 2000.
1.13 IMPORTANCE OF THE STUDY
This research is important to the following people and in the following ways:
i. This study would be extremely beneficial to market participants such as stockbrokers, issuing houses, and the like, as it would highlight their shortcomings in the area of securities pricing.
ii. It would also be beneficial to public investors because it would educate them on which stocks to invest in.
iii. The study would also be useful for students of finance, accounting, economics, and business administration because it would teach them about the pricing function of the Nigerian capital market.
iv. The study would aid policymakers in the Nigerian capital market in developing strategies to improve pricing efficiency, thereby improving overall efficiency.
1.14 THE STUDY’S OBJECTIVES
Given the widespread ignorance surrounding pricing operations in the Nigerian capital market, the following specific goals are set for this study:
a. To assess the pricing of securities in the Nigerian capital market
b. To assess the various methods for determining the price of shares and securities.
c. To investigate the effectiveness of the securities market.
d. To ascertain the trend of share prices on the Nigerian Stock Exchange (NSE)
e. Investigate the factors that solely determine the prices of securities in Nigeria’s capital market.
f. To find a solution to the difficulties in pricing securities on the Nigerian Stock Exchange.
HYPOTHESIS 1.15
For the purposes of this research, it is preferable to test the hypothesis so that valid conclusions can be drawn to accept or reject the assumptions on the following grounds.
Ho: Securities in Nigeria’s capital market are not priced efficiently.
Hi: Securities in the Nigerian Capital Market are priced efficiently.
1.16 QUESTIONS FOR RESEARCH
The following questions will be addressed by this research project:
I How fair are securities prices in the capital market?
(ii) How relevant is the Nigerian capital market’s method of pricing securities in comparison to other methods available?
(iii) How quickly do security prices react to available information about company performance and the state of the economy?
(iv) To what extent do public investors rely on the prices of securities in this market?
(v) What relationship exists between stock market prices and corporate levels of economic activity?
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