IMPACT OF NIGERIAN STOCK EXCHANGE ON THE DEVELOPMENT OF NIGERIAN ECONOMY.
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IMPACT OF NIGERIAN STOCK EXCHANGE ON THE DEVELOPMENT OF NIGERIAN ECONOMY.
Chapter one
INTRODUCTION
1.1 Background for the Study
The Nigerian Stock Exchange is a global economic growth and development engine; Nigeria includes markets and organisations that support the issuance and secondary trading of long-term financial instruments.
The Nigerian Stock Exchange may be traced back to 1946, when the British colonial administration issued an N600,000 local loan stock with a 3% interest rate to fund developmental projects under the Ten Years Plan Local Ordinance.
The loan stock, which had a maturity of 10-15 years, was oversubscribed by more than N1 million, although local participation in the issue was extremely low.
As a result of low local participation, the federal government established several economic programmes with the goal of fostering economic and financial development, including the Structural Adjustment Programme (SAP) 1986, Vision 2010, Vision 2020, Millennium Development Goals (MDGs), National Economic Empowerment Development Strategy (NEEDS), State Economic Empowerment Development Strategy (SEEDS), and other development plans.
The Nigerian Stock Exchange recently enjoyed extraordinary growth, which was attributable to the banking sector reform of 2004-2005. According to Nwankwo (1991), the Nigerian Stock Exchange has assisted the government and corporate entities in raising long-term capital for funding new projects, as well as expanding and modernising industrial and commercial enterprises.
According to Pedro and Erwan (2004), financial market growth increases output by increasing the amount of capital used in production and guaranteeing that money is put to good use.
Beckaert et al. (2005) argue that the construction of the Nigerian Stock Exchange will lead to financial liberalisation, resulting in a 1% boost in yearly real economic growth.
Laessens et al. (2006) used a panel data technique to study the relationship between domestic stock market development and internationalisation and concluded that the log of GDP per capita, stock market liberalisation, capital account liberalisation, and country growth opportunities all have a positive influence on domestic stock market development and internationalisation, while the government deficit/GDP ratio has a negative influence.
According to Ekundayo (2002), in order to achieve long-term economic growth and development, a country requires significant domestic and foreign investment.
The Nigerian Stock Exchange makes this possible. This research paper will investigate the impact of the Nigerian Stock Exchange on economic growth and development from 1990 to 2011.
The Nigerian Stock Exchange is a network of financial institutions and infrastructure that work together to mobilise and allocate long-term capital in the economy. The market allows businesses and governments to sell stocks and bonds in order to generate long-term returns on other economic agents’ savings.
The Nigerian Stock Exchange is a highly specialised and organised financial market that is an important driver of economic growth due to its ability to facilitate and mobilise savings and investment.
Long-term financing through the Nigerian Stock Exchange is critical for self-sustaining economic growth, which is consistent with external adjustment and rapid expansion (Iyola, 2004).
The Nigerian Stock Exchange began operations in Nigeria on June 5, 1961, under the provisions of the Lagos Stock Exchange Act 1961, and was renamed the Nigerian Stock Exchange in December 1977 following a review of the Nigerian financial system (CBN, 2007).
The Securities and Exchange Commission (SEC) was founded in 1979 under the SEC Act 1979 to supervise the capital market, but it began operations in 1980. It took over regulatory tasks from the Capital Issues Commission, which was formed in 1973.
Since then, new and established businesses have issued a variety of financial instruments on the Nigerian Stock Exchange to fund product development, new initiatives, and overall business expansion.
The capital market is undeniably important to the economy’s growth and development. According to Chinwuba and Amos (2011), the Nigerian Stock Exchange is one of the primary institutions responsible for moving a stagnant economy towards growth and development.
According to Nyong (1997), it is a complex organisation endowed with an inbuilt mechanism for mobilising, harnessing, and making accessible long-term capital from surplus sectors of the economy to deficit sectors.
According to Osaze and Anao (1999), the Nigerian Stock Exchange is the cornerstone of any financial system since it provides the capital required to finance not only businesses and other economic institutions, but also government programmes in general. According to Ilaboya and Ibrahim (2004), the Nigerian Stock Exchange serves as an economic barometer that galvanises economic activity.
Nigeria’s current democratic experience began on May 29, 1999, when the military government handed over authority to civilians. The campaign for the military’s departure began because many economic players believe that democracy, among other things, fosters economic growth.
Supporters of democracy also argue that a climate of liberty, free-flowing information, and secure control of property can sustain citizens’ motivation to work and invest, the effective allocation of resources in the market, and profit-maximizing private activity (North, 1990).
Given the foregoing, the question that immediately comes to mind is whether or not the Nigerian Stock Exchange has had a significant impact on the expansion of the Nigerian economy, given the conducive atmosphere created by the supportive democratic system.
Indeed, this is one question that previous empirical studies have failed to resolve. This study is being conducted to fulfil this “curiosity” and thereby fill the existing gap.
For decades, the economic development argument has revolved around savings, capital formation, and economic growth. The relationships between these concerns, as well as the direction of causality, require more investigation across countries.
Accepting that the relationship is one-way (i.e., from savings to investment and hence to economic development) may be deceptive. (Ben, 1999) emphasised that the Nigerian Stock Exchange provides an arrangement through which individuals, corporations, and governments intending to invest more than they can bid for the funds of other spending units with surplus funds, which is important for economic growth.
Capital markets are a set of institutions and processes that aggregate long-term funds with maturities of 5 years or more and make them available to businesses, governments, individuals, and the transfer of existing instruments. Capital markets, like money markets, have local, regional, and national dimensions.
The mobilisation of resources for national development has long been the primary concern of development economists. As a result, the importance of savings and investment in economic growth has received a lot of attention in the literature.
According to Rostow (1960), Malinvaud (1997), Soyode (1990), Aigbokan (1995), Samuel (1996), Demirguc-Kunt, and Roos (1996), for long-term growth and development, funds must be effectively mobilised and allocated so that businesses and the economy can maximise their human, material, and management resources.
The present literature clearly reveals that developed economies have investigated the two avenues via which resource mobilisation influences economic growth and development:
money and the Nigerian Stock Exchange (Demirguc-Kunt and Roos, 1996; Samuel, 1996). This is not the situation in developing nations, where focus was placed on the money market with little concern for the Nigerian Stock Exchange (Nyong, 1997).
Since the implementation of the structural adjustment programme (SAP) in Nigeria, the stock market has developed dramatically. Alile (1996); Soyode (1990). This is the effect of financial sector liberalisation and privatisation, which exposed investors and businesses to the importance of the stock market.
Equity financing became one of the cheapest and most flexible sources of financing from the Nigerian Stock Exchange, and it continues to be a crucial component in the economy’s long-term development (Okereke 2000).
The relationship between stock market success and economic growth has frequently sparked heated debate among analysts studying both developed and emerging nations.
Samuel (1996); Demirguc-Kunt and Roos (1996); Akinifesi (1987); Levine and Sara (1996); Obadan (1998); Onosode (1998); Emenuga (1998); and Osinubi (1998) According to Nyong (1997), a firm’s financial structure, or the mix of debt and equity financing, fluctuates as economies evolve; nonetheless, the trend is more towards equity financing via the stock market.
As economies grow, more cash are required to support the rapid increase. The stock market is a valuable tool for mobilising and allocating savings among competing users, which is crucial to economic growth and efficiency (Alile, 1984).
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