The impact of stock exchange on capital accumulation in Nigeria: an empirical analysis 1980-2010

Complete Chapter One



This study examine empirically, economic analysis of the stock exchange and capital accumulation in Nigeria over the period 1980-2010. Nigeria as a country is immensely endowed, both in natural and human resources. However, every of Nigeria situation would be quick to recognize the negative factor lying on the roads to economic growth progress, among which are lack of public and private investment that result from government lack of comprehensive policies to reverse the trend. The stock exchange market is the prime motor that drive any economy on its path to growth and development. The stock exchange market is a common feature of a modern economy and it is reputed to perform some necessary functions which promote the growth and economy development of the economy. To achieve this objective co-integration was employed using the data from 1980-2010. It was to estimate order to capture the impact of stock exchange market on capital accumulation. The results indicated that there is a positive relationship between Gross capital formation and all the stock exchange market variable used except market capitalization and exchange rate. With 81.890 percent R2 and 73.871 percent R2, and DW- statistics of 2.0436, the result showed that capital accumulation in Nigeria is adequately explained by the model for the period of 1980-2010. By implication 73.871 percent of the variation in the growth of economic activities is explained by the independent variables. The result of the study which established positive link between the stock exchange market and capital accumulation, suggest the pursuit of policies geared towards rapid development of the stock exchange market. Also, all sectors of the economy should act in a collaborative manner such that the optimum benefits of linkage between the stock exchange and capital accumulation can be realized in Nigeria.


Title page – – – – – – – – i
Certification – – – – – — – – iii
Dedication – – – – – – – – iv
Acknowledgment – – – – – – – v
Abstract – – – – — – – – – viii
Table of content – – – – – – – xi
1.1 Background of the study- – – – – 1
1.2 Statement of the research study- – – 4
1.3 Objectives of the study- – – – – 6
1.4 Hypothesis of the study- – – – – 7
1.5 Significance of the study- – – – – 7
1.6 Scope of the study- – – – – – 8
1.7 Methodology of the study- – – – – 9
References – – – – – – – – 10
2.1 Conceptual issues – – – – – – 11
2.2 Evolution and development of the stock exchange market in Nigerian- – – – – – – 15
2.3 Characteristics of the stock exchange market in Nigeria- — – – – – – – – 23
2.4 Role of stock exchange market in Nigeria
economy – – – – – – – – 25
2.5 Measures of the stock exchange market in
Nigerian- – – – – – – – – 27
2.6 The stock exchange market and economic growth in Nigeria- – – – – – – – – 30
2.7 Impact of stock exchange market in foreign investment – – – – – – – – 35
2.8 Capital accumulation: Conceptual issue – – 39
2.9 Origin of capital accumulation- – – – 43
2.10 The measurement for capital accumulation- 45
2.11 The stock exchange market and capital accumulation theory and evidence- – – – 48
References – – – – – – – – 52
3.1 Model specification and consideration- – – 59
3.2 Sources of data – – – – – – – 61
3.3 Methodology analysis – – – – – 61
3.4 Nigeria stock exchange framework – – – 62
3.5 Wicksell’s theory on capital accumulation- – 66
3.6 Neoliberalism theory of long run on capital accumulation – – – – – – – – 69
References – – – – – – – – 74
4.1 Presentation of regression result – – – 78
4.2 Analysis of regression results- – – – 79
4.3 Policy implication – – – – – – 89
References- – – – – – – – 91
5.1 Summary of major findings- – – – 94
5.2 Policy recommendation- – – – – 96
5.3 Conclusion- – – — – – – – 98
References – – – – – – – – 100
Bibliography – – – – – – – – 101
Appendix – – – – – – – – 114

The stock exchange market as an arm of capital market are central institution in long-term financial intermediation.
Stock exchange, as an important component of the capital market, play a significant role in the capital formation process and enhance developmental growth, because of the tremendous opportunities that ensue from its activities. The Nigerian stock exchange is expected to mobilize long term savings to finance long term investment by providing capital in the form of equity to entrepreneurs. The stock exchange is not just a financial institution but, the very hub of the capital market, which every activity of the capital market revolves.
Capital accumulation involves both a net addition and a redistribution of wealth, which may raise the question of who really benefits from it most. If more wealth is produced than there was before, a society becomes richer, the total stock of wealth increases. But if some accumulate capital only at the expense of others, wealth is merely shifted. It is possible that few organizations accumulate capital and grow richer, although the total stock of wealth of society decreases.
Securities market, primarily the stock market, measures the value of a firm’s capital stock. The value is the product of the price of installed capital and the quantity of capital. The work is about inferring the quantity of capital and therefore the amount of capital accumulation from the observed values of securities. In the simplest case, without adjustment costs, the price of capital is observed in capital goods markets and is also the price of installed capital. The quantity of capital is the value observed in the stock market.
There is an argument that the stock exchange market in developing countries in general have not leave up to expectations in terms of the extent and degree of capital mobilization for economic growth and development inspite of policies instituted by the government at various times. The performances of the Nigeria stock exchange over the nearly 30 years of its existence has been relatively poor compared to other stock exchange of similar age in some developing countries.
The stock exchange market has been assigned to play an important role in promoting capital accumulation. There is now a call for better corporate governance in order to protect the interests of the shareholders leading to stock market developments and capital accumulation. The avowed objective of government concern for a proper legal environment in the stock market is promotion of growth through capital accumulation.
Comparison of the Nigeria stock market with, Korea, Malaysia and india stock market based on such indications as market capitalization as a proportion of Gross Domestic Product(GDP) and value of stock traded, shows the dismal condition of the Nigeria capital market. Market capitalization as a percentage of GDP increased remarkably in all the countries except Nigeria between 1983 and 1999. (see Ogwu Mike and Omole, 2004). Only Nigeria did this ratio increase by less than a percentage point.
Other indicators, such as number of listed companies and the value of stock traded, also indicate the relative poor performance of the Nigeria stock exchange market.
The link between stock market and capital accumulation has often generated strong controversy and ambiguities, because it could refer to
* A net addition to existing wealth
* A redistribution of wealth
In appraising the Nigeria stock exchange market the major problem is that of the capital market and money market which itself comprise the financial institution. The complexity in this understanding of operational system, the link of the capital with other specialized institution and the eventual effect of the capital market operations on the nations economics has been considered.
In effect, this study identified the problem relating to:
(i) Unavailability of enough literature covering the Nigerian capital market and capital securities.
(ii) Public ignorance of the existence and benefits of Nigeria stock exchange stressing on the effect of this ignorance as far as loss of investment opportunity concerned.
(iii) the major problem of stock market in highly fluctuating stock prices which are much beyond the possible changes in real worth of companies representing the stock.
(iv) the internet problem in stock market rely on the fact that information may be false and misleading either causing stock prices to rise or fall. Also, illegal individuals artificially inflate the price of a stock for their own benefit.

Looking deep in the stock exchange market in Nigeria, the study will basically provide an organized, fair, and efficient market for trading securities and secure a transparent strong and safe environment for trading securities to deepen trust in the stock market and this study basically to
(i) Creating an attractive and safe environment for investment.
(ii) Developing processes and methods of trading securities in the stock market.
(iii) Meeting the latest international standards.
(iv) Disseminating trading information to the largest possible number of dealers and interested parties.
(v) Enhance the public awareness of all segments of society, while devoting especial attention to dealers of securities.
(vi) Transparency and credibility in the dealings of the stock market.
(vii) Estimate the relationship between stock exchange development and capital accumulation.

There is a positive relationship between market capitalization and capital accumulation and also there is a positive relationship between portfolio investment and capital accumulation.
There is positive relationship between exchange rate and capital accumulation and a positive relationship between RGDP(Real Gross Domestic Product) and capital accumulation.
The study will also be of great advantage to individuals, entrepreneur and the public at large. Since the finding of this study will be very educative in terms of its impact on stock exchange and capital accumulation in Nigeria.
The finding of this study will be of great value to the government as it affects the development and growth of the economy which subsequently affects the monetary policy of the government.

Securities available in Nigeria stock exchange market can broadly be classified into two: Government development stock and industrial securities which comprise of equities, preferred stock. However in this study, we shall concern ourselves only with stock market size and capital stock since we are dealing with the stock exchange and capital accumulation. The period and topic is chosen to make the study as current and as relevant as possible. The study will also cover the performance of the stock exchange for period 1980-2008 and see the effect on capital accumulation.
For the purpose of this, the research work will make use of theoretical exposition and analysis of secondary data.
The data for this study would be obtained mainly from secondary sources, particularly the Central bank of Nigeria (CBN) publications (such as the CBN statistical bulleting, CBN reports and statement of accounts), and other published works.


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