GLOBALIZATION AND STOCK MARKET GROWTH IN NIGERIA.
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GLOBALIZATION AND STOCK MARKET GROWTH IN NIGERIA.
Chapter one
INTRODUCTION
1.1 Background for the Study
Globalisation is essentially the universalization of thoughts, movements, technologies, and market processes in the framework of a constrained planet. A process by which the world is unified (Schotte, 2006; Monge, 2008).
Furthermore, it is a process marked by increased communication speed, technological sophistication, economic integration, and ideological universalism.
Globalisation is a reality of life since it affects everyone in some way, whether it has beneficial or negative consequences. It is one of the tendons of our time, causing significant changes in the policy structure, management, and growth directions of organisations and states around the world. Globalisation, in larger words, refers to the reality that frontiers no longer serve as a barrier to economic expansion.
Globalisation is driven by advances in sophisticated telecommunications and technology, which has resulted in a reduction in distance between economic agents, allowing domestic markets to integrate into a global system.
In this context, globalisation has created a variety of financial and investment opportunities, which many developing countries, such as Nigeria, have used to secure substantial foreign (bank) debts in the early 1970s.
The pace of global economic integration has increased dramatically as a result of fundamental shifts in the global economy. The collapse of communism has accelerated global integration, particularly in trade and money movement.
The world’s ideological segmentation, which previously prohibited integration between the major blocks, has given way to a more hospitable environment and the opening up of formerly closed societies (Monge 2008).
Globalisation in its current form firmly established itself in Nigeria with British colonisation and empire building. The Nigerian stock market has developed dramatically since the implementation of the Structural Adjustment Programme (SAP) (Alile, 1996; Soyode, 2010).
This is the effect of financial sector liberalisation and privatisation, which exposed investors and firms to the importance of the stock market.
Equity financing has become one of the most cost-effective and flexible methods of capital market financing, and it continues to be an important component of the economy’s long-term development (Okereke-Onyiuke, 2000).
The rapid growth of the stock market, as seen by increased cross-border capital movements, has been attributed to the lifting of statutory limits on capital account transactions and economic emancipation.
The IMF (1998) ascribed another global stock market expansion to macroeconomic stabilisation and policy reforms in developing nations, including privatisation, trade liberalisation, and stock market growth.
Similarly, stock market globalisation can be ascribed to the dissemination of best practices in corporate governance, accounting regulations, and legal traditions (Feldestein, 2010).
According to Temitope, Oshikoya, and Ogbu (2000), the stock market is considered as a means of encouraging saves, directing money towards productive investments, and increasing investment efficiency and productivity.
The necessity to attract foreign capital in non-debt generating forms has heightened the emphasis on stock market expansion for domestic resource mobilisation. Recently, a consensus has arisen emphasising the importance of the stock market in the development process.
Globalisation contributes to the transmission of liquid wealth through savings, investments, and productivity, resulting in the rise of the stock market (Akinola, 2003). Several studies have proved the importance of the stock market in efficiently transferring funds for economic development (Magnus and Wydick, 2002).
The importance of the stock market in economic development cannot be overstated, and the liquidity of stocks (capital investment) has been underlined. Many good investments necessitate a long-term commitment of capital, but investors may not want to lock up their savings for such extended durations.
Until recently, Nigerian stock markets did not fare well when compared to those in other parts of the world. However, the Nigerian stock exchange has undergone considerable increases since the turn of the millennium: market capitalization and new listings have undoubtedly increased.
These changes have occurred in the backdrop of globalisation and internationalisation policies, reflecting the government’s efforts to use stock markets as a tool of privatisation and economic growth. Against this backdrop, this study aims to investigate globalisation and stock market expansion in Nigeria.
1.2 Statement of Problem
The stock market’s function is to mobilise savings and direct them towards profitable ventures. More particular, the stock market serves the distinctive function of intermediation at the long end of the market.
It offers long-term loan financing against long-term assets. Furthermore, by providing access to risk capital and long-term financing, the stock market contributes to the financial strength of firms and the overall solvency of the financial sector.
A well-developed stock market can provide a wide choice of financial instruments, allowing for higher returns for a given level of risk. Thus, a well-developed financial market can serve to drive economic growth by allocating credit and investing.
However, in recent years, the Nigerian economy and financial system have become so robust that they are immune to the negative externalities of the global financial crisis. Bank recapitalization and the stock market inflating bubble were rapid references to the pillars that assured the economy’s strength.
However, when the Nigerian Stock Market’s recession worsened, the formal admission that Nigeria is not a closed or isolated economy, as many people had been misled to believe, became necessary.
As a result, the central bank faced a crisis in the equities market due to fund withdrawals by international institutions and private investors. This indicates that Nigeria is equally exposed. Nigeria’s current economic slump has had a significant impact on the country’s stock market growth. This was a serious issue for this investigation.
1.3 Research Questions.
To validate the viability of the study’s proposed hypotheses, the research questions listed below were used.
i. How does the globalisation of the central market (stock exchange market) affect market operations?
ii. How has the Automated Trading System affected market operations in Nigeria?
iii. How does the globalisation of the currency market impact foreign direct investment?
1.4 Objectives of the Study
The study’s overarching goal is to investigate the influence of globalisation on Nigeria’s stock exchange market operations. The precise aims are:
i. Investigate the influence of globalisation on Nigeria’s stock market operation.
ii. Determine whether the deployment of an automated trading system has a substantial impact on stock market operations.
iii. To determine whether the globalisation of Nigeria’s stock market has attracted foreign direct investment.
1.5 Statement of Hypothesis
To conduct a thorough research and achieve the study’s aims, the following hypotheses, given in null and alternate formats, were adopted:
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