IMPACT OF THE SECOND TIER SECURITIES MARKET ON SMALL SCALE INDIGENOUS INDUSTRIES IN NIGERIA
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IMPACT OF THE SECOND TIER SECURITIES MARKET ON SMALL SCALE INDIGENOUS INDUSTRIES IN NIGERIA
Chapter one
1.1 Background of the Study
The small-scale industrial initiative has been universally acclaimed as the foundation for any significant industrialization strategy in any nation, particularly in less developed countries. As a result, governments around the world have devoted a significant amount of resources and effort to the development of such sectors.
In Nigeria, for example, the government began making systematic attempts to grow this sector in the early 1970s through policies outlined in the National Development Plans. Furthermore, financial institutions, particularly development, commercial, and merchant banks, have been forced to expand to a specific percentage.
Despite all of these efforts, the expansion of small-scale companies has been significantly hampered, owing mostly to the promoters’ limited financial resources.
Most businesses do not have access to the capital market, therefore long-term financing adequate for the sustainability of business expansion may not meet the requirements that would allow them to raise funds in the capital market.
Nigerian entrepreneurs have been ambivalent about pursuing a public quotation by listing on the Nigerian stock exchange. Despite the fact that the Nigerian stock exchange has been in operation since September 15, 1960, just three totally owned Nigerian companies were listed on it in 1982. During the 1972 indigenization exercise, Nigerian corporations made a big shift towards public quotation.
The programme compelled previously foreign-dominated business enterprises to carry all, resulting in 44 listed companies as of the end of May 1985, but it prompted a seminar on public quotation for indigenous companies organised by GLAXOSMIHKLINE NIGERIA PLC in Lagos in 1981.
A. High expense of getting quotes
B. Fear of losing control of the business after receiving a quote.
C. Personal convictions (Egocentric reasoning)
D. Reluatative disclosure of financial information with little or no experience of the capital market.
In effect, the resolutions laid the groundwork for the establishment of the second tier security market (SSM), which debuted on April 30, 1985. In Nigeria, the SSM is also known as the unlisted company market (UCM) in the unit kingdom, and its major goal is to give a forum for small-scale business quotations. The primary motivation for establishing a second-tier security business is to obtain quotes on this market.
1.2 Statement of Problem
A corporation must make several financial decisions, the most important of which are divided into three categories. The first is concerned with determining a company’s total financed needs, the second with acquiring the optimal mix of such financial needs from various institutions
and the third with the appropriate management of the monetary instruments, including cash, that the company has. The second aspect is important to the study because it deals with the acquisition of a company’s predetermined financial needs.
A company’s capital structure is made up of equity, debt, and retained earnings. The endeavour to achieve an ideal composition in these components raises some concerns, including the desirability of each source, the true cost of alternative funds, and enterprises’ uneven treatment in terms of access to money.
It is widely thought that tiny enterprises face discrimination in the funding market, implying that there are defects connected with the size of firms receiving cash from various sources.
1.3 The purpose of the study
Although this study is an academic exercise to achieve an academic qualification, it will ultimately investigate the extent to which indigenous enterprises in Nigeria use the stock exchange’s second tier securities market (SSM) as a source of long-term financing for their investments.
The SSM is a recent invention on the Nigerian Stock Exchange (revolved in April 1984) to meet the needs of indigenous enterprises, which are typically modest in size. Until the evolution of the SSM, small businesses were unable to access the stock exchange market since the conditions for listing were too high and expensive for them.
Since its establishment in 1985, just thirty small and medium-sized firms have qualified and been listed on the SSM, despite the reduction of entry standards observed during the project’s initial phase.
The rating given to the thirty companies on the SSM was based on their growth potential and importance to the national economy. When comparing the listed businesses’ securities, it was discovered that, instead of the five-year trading record needed of listed companies
SSM companies must give a three-year trading history. This makes admission into SSM simpler for them because the majority of them are young and do not have much trading experience.
It is also required that at least 25% of the issued share capital of listed companies be made available to the public; however, in the case of SSM companies, at least 10% of their shareholders’
capital be made available to the public; the number of shareholders in the former group must not be less than 500, and the number in the latter group is limited to 100.
Therefore, the goal of this study is to:
* Investigate the extent to which indigenous enterprises in Nigeria or Lagos use the second-tier securities markets (as defined by the Stock Exchange) as a source of long-term financing for their investments.
* Examine the objectives of the second-tier security market to determine how well they are being met;
* Conduct an inventory of all enterprises that have so far been listed and analyse their state.
* Determine the explanation for the low response of indigenous companies in becoming listed on the SSM seen in the previous study.
* Determine how indigenous businessmen see the listing requirements in relation to the economy’s development stage;
* Determine how the SSM contributes to Nigeria’s economic development;
* And to provide remedies to the problem found by the investigation.
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