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their private use. The determinant of share prices, interest rate (ITR) is positive
from the result above. It invariables means that the Nigeria capital market depends
on the prevailing situation. For instance if interest rate is high, the demand for
shares will be low and speculative investors are likely to buy more of the shares,
only to sell them when share prices are high as interest rate falls. The profit they
make in future induces economic growth. Based on the results of the independent
variables as explained by the dependent variable; it can conclusively be said that
market capitalization and interest rate have positive impact on growth while
government stock retards growth. But the three variables are statistically
significant. On the other hand total transactions and money supply variables are not
statistically significant. The coefficient of multiple determinations (R2) of 0.99 or
99 percent variation in the observed behaviour in the dependent variable is jointly
explained by the independent variables. The remaining 0.01 or one percent is
captured by the stochastic error term. Thus the high R2 indicates that the model is a
good fit. The F-statistics of 432.5 indicates that it is statistically significant. A
cursory examination of the Durbin-Watson (DW=1.2) statistics result shows that
the test is inconclusive, hence it can not be concluded with certainty that auto
correlation exist or not.
5. Conclusion
This study reveals that there is a linkage between capital market role and
economic growth and development, vis--vis market capitalization, money supply,
total transaction in stock, government development stock and interest rate. As it
can be observed market capitalization, government development stock and interest
rate are important capital market variables that are capable of influencing
economic growth in Nigeria. This is because, a large capital market widen the
prospect for growth and also government development stock if well invested and
not misappropriated to un-lucrative sector that does not have the potentials of
growth inducement. Further more, interest rate acts as a function of what happens
in the capital market. Like-wise money supply and total transaction in stock are
potential growth inducing macro-economic variables that are capable of enhancing
economic growth in Nigeria. But the study clearly shows that Nigeria economy has
low absorptive capacity, that is financial capital cannot be absorbed productively to
stimulate economic growth and development. Moreover, the market is
characterized by illiquidity and excessive government regulations.
Performance
The Nigerian capital market has performed
fairly despite the numerous challenges and
problems some of which include: the buy and
hold attitude of Nigerians, massive ignorance of
a large population of the Nigerian public of the
nature and benefits of the capital market, few
investment outlets in the market, lack of capital
market friendly economic policies and political
instability, private sector led economy and less
than full operation of recent developments like
the Automated Trading System (ATS), Central
Securities Clearing System (CSC), On-line and
Remote Trading, Trade Alerts and Capital Trade
Points of the Nigerian Stock Exchange.
4.3.1 Total New Issues
The total new issues before 1989 was below
N1 billion. However, from 1989 to1996 it hovered
between N1 billion to N10 billion. The amount
crossed the N10 billion marks in 1997. For
instance, between 1996 and 2001, a total of 172
new issues (securities of public companies
amounting to N56.40 billion) were floated in the
capital market. The total new issues were valued
at N5.85 billion in 1996 but it rose by about 532%
to N37.198 billion in 2001. Total new issues was
N61, 284 billion, in 2002, N180, 079.9 billion in
2003. N195,418.4b in 2004 and N552,782b in 2005.It
crossed the trillion mark in 2007 being N1.935
trillion that year but fell to N1.509 trillion in 2008.
(see Appendix 1)
4.3.2 Market Capitalization
This is the most widely used indicator in
assessing the size of a capital market to an
economy. In a bearish market the market
capitalization falls and vice versa for a bullish
market. Before 1988, the total market capitalization
was less than N10 billion from 1988 to 1994. It
hovered between N10 billion to N57 billion. In 2003 it was N1,3593 trillion,
N2.1125 trillion in 2004
ABSTRACT
This study attempts to empirically examine the impact of stock market
capitalization, value of listed securities and all share index on Gross
Domestic Products of the Nigeria economy over twenty eight (28) year
period. The unit root test and co-integration test were carried out. The result
revealed a positive relationship between market capitalization and output
level of Gross Domestic Product (GDP). The result also show that the value of
listed securities had a positive and significant relationship with the output
level of Gross Domestic Product (GDP) while the all share index has a
negative and a significant relationship with the output level of GDP. The
implication of this result is that the growth or increase in market
capitalization and value of listed securities up to 2008 has resulted to
increases in output level of GDP in Nigeria. It is recommended that policy
makers and market regulators in Nigeria should sustain policy measures that
will ensure continuous increase in the GDP.
Value of
Listed
Securities
Governme
nt Stocks
All Share
Index
1.000000
(-1.110)
6.017
(1.033)
0.000
(2.041)
220.936
(3.048)
Industrial
Securities
6.036
(0.199)
GDP
-350.039
(-1.745)
=
=
=
0.995
0.990
0.987
=
=
=
=
3.65753
1.739
379.309
5
Coefficient
Std. Error
Beta
-102863.731 92647.332
Sig.
-1.110
.280
6.017
5.823
0.726
1.033
.314
Government Stocks
0.000
0.000
0.080
2.041
.055
220.936
72.478
0.987
3.048
.006
6.036
.000
0.114
0.199
.844
-350.039
200.583
-0.793
-1.745
.096
X5 GDP
Industrial security is not significant at both the 5 percent and 10 percent levels. The
implication of the findings is that although the stock market structure had enhanced
the level of capital formation and thus affected the level of stock market
performance positively, the stock market system has not been efficient in resource
allocation evidently. Here, the process of intermediation in the system is not
efficiently done. Although the stock market system has not grown tremendously in
size and structure this has not been translated in the provision of loans and credits
especially to the real sector of the economy.
CHAPTER 5
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1
Summary
The findings of the study from the analysis done could be summarized as shown below. The main
features of the capital market performance aggregates during the 5 year period, as evidenced from Table 2
were as presented below. The capital market performance index of MS2/GDP moved from 35.9 in 1986
down to 24.2 in 1992 and increased to 29.7 by 1994. This declined further to 15.3 by 1997 before rising to
32.0 by 2004. The aggregate moved down to 18.0 by 2005 and up again to 29.7 by 2007. The trends
above clearly show that the capital market performance index did not experience any dramatic changes
during the period. This is despite the various reforms introduced from 1986 which should have a positive
effect on capital market performance in Nigeria. Although the number of capital market institutions
especially banks, increased following the 1986 reforms, over time, these institutions could not sustain a
high level of intermediation in the system. The presence of weak and terminally distressed banks
especially in the 1990s up to 2003 accounted for the low level of capital market performance index during
the period: This necessitated the banking consolidation reforms introduced in 2004/2005. A high level of
capital market performance should sustain and provide basis for moderate lending rates in any economy.
Curiously, the prime lending rates had remained very high. The major reason for this according to Nzotta
(2004), Ojo (1994) includes technical in solvency and presence of weak banks, the underdeveloped nature
of the capital market system, the lack of interest elasticity, un-responsiveness of the rates to changes in
business cycle and the huge fiscal deficits by the public sector over the years. We also note that the rate of
inflation in Nigeria also remained fairly stable between 1997 and 2007. The ratio of currency outside
banks to money supply progressively declined between 1997 and 2007. The ratio moved from 30.4 in
1979 down to 15.2 in 2007. This shows a higher level of banking habits in the country. The decline had
been more pronounced between 2005 and 2007 following the increased use of Automated Teller
Machines and plastic money in the country. The ratio of market capitalization to money supply witnessed
dramatic changes between 2003 and 2007. The ratio moved from 145.4 in 2002, up to 449.5 in 2003 and
the level of capital market savings ratio (MCAP/GDP) declined between 1986 and 1993 The ratio
experienced an upsurge between 2006 and 2007 but decreased from 2007 to 2010. The same applies to
the market capitalization to GDP ratio. The bank consolidation of 2005 enhanced the operations of banks
and also capital market sector development and this affected the assets of the Nigeria Stock Exchange. In
summary, from the analysis above it is evident that there is relatively a low level of performance of the
capital market in Nigeria during the period of the study. However, the level of capital market performance
has been enhanced just after major reforms in the capital market system. It is also important to note that
the reforms and policy thrusts could have impacted more positively on the system if the issue of systemic
crisis had reduced considerably leading to effective market capitalization
5.2
Conclusion
The study sought to examine the Role of Nigerian Stock Exchange in capital
formation in Nigeria. In the light of this effect, the study equally sought to identify
the long-run impact of the stock market indicators on the economy. The result
indicates that no significant relationship exist between market capitalization and
Gross Domestic Product, and also between the value of listed securities and market
capitalization variables. By implication, market capitalization, all share index and
government stocks affect the economic growth of Nigeria. The value of listed
securities had no significantly effect on the growth rate of the economy. The result
confirms that previous market capitalization and value of listed securities ginger up
current economic growth even in the face of influence by other economic
variables.
From the test of the hypotheses it is evident and conclusive that: There is no
significant relationship between market capitalization and the value of listed
securities in the Nigerian stock exchange; There is significant relationship between
market capitalization and Government Stocks in the Nigerian stock exchange; There
is significant relationship between market capitalization and all share index in the
Nigerian stock exchange; There is no significant relationship between market
capitalization and Industrial Securities in the Nigerian stock exchange and There is
significant but negative relationship between market capitalization and the Gross
Domestic Product (GDP) in Nigeria.
5.3
Recommendations
In order for the Nigerian capital market to be a pivotal force in Nigeria
socio-economic growth and development, the following suggestions are put
forward:
(i)
There should be improvement in the declining market
capitalization by encouraging more foreign investors to participate in the
market, maintain state of the art technology like automated trading and
settlement practices, electronic fund clearance and eliminate physical
transfer of shares.
(ii) There is also need to restore confidence to the market by
regulatory authorities through ensuring transparency and fair trading
transactions and dealing Government Stocks in the stock exchange.
(iii) It must also address the reported cases of abuses and sharp
practices by some companies in the market. Moreover, the total listing in the
NSE is still a far cry compare to other stock exchanges like South Africa and
Egypt. Therefore, to increase the number of listed companies there is need to
ensure stable macroeconomic environment, encourage foreign multinational
companies (MNCs) or their subsidiaries to be listed on the Nigerian Stock
Exchange, relax the listing requirements to the first tier market and ensure
tax rationalization in the capital market to encourage quotation and public
interest in shareholding Government Stocks.
(iv) For new issues, increase the minimum equity capital
requirements for companies other than banks, insurance companies and
other financial institutions, encourage merger and consolidation,
discriminatory income tax in favour of public quoted companies and
Appendix 3: Regression Analysis Showing the Relationship between Market Capitalization and Value of Listed
Securities, Government Stocks, All Share Index, Industrial Securities and GDP
Model Summaryb
DurbinChange Statistics
Adjusted R Std. Error of
Model
1
R
.995a
R Square
.990
Square
.987
the Estimate
3.65753E5
R Square
Change
Change
.990 379.309
Watson
Sig. F
df1
df2
5
20
Change
.000
1.739
A. Predictors: (Constant), GDP, Government Stocks, Industrial Securities, All Share Index, Value Of Listed Securities
B. Dependent Variable: Market Capitalization
Coefficientsa
Standardized
Unstandardized Coefficients
Model (Variable)
1
Coefficients
Std. Error
-102863.731
92647.332
6.017
5.823
.000
Beta
Sig.
-1.110
.280
.726
1.033
.314
.000
.080
2.041
.055
220.936
72.478
.987
3.048
.006
Industrial Securities
6.036E-7
.000
.114
.199
.844
GDP
-350.039
200.583
-.793
-1.745
.096
a.
ANOVAb
Model
1
Sum of Squares
df
Mean Square
Regression
2.537E14
5.074E13
Residual
2.675E12
20
1.338E11
Total
2.564E14
25
F
379.309
Sig.
.000a
A. Predictors: (Constant), GDP, Government Stocks, Industrial Securities, All Share Index, Value Of Listed Securities
B. Dependent Variable: Market Capitalization
Correlations
Value Of
Pearson
Correlatio
n
Market Capitalization
Market
Listed
Government
All Share
Industrial
Capitalization
Securities
Stocks
Index
Securities
GDP
1.000
.922
.094
.924
.954
.891
.922
1.000
.048
.788
.982
.879
Government Stocks
.094
.048
1.000
.241
-.015
.323
.924
.788
.241
1.000
.802
.939
Industrial Securities
.954
.982
-.015
.802
1.000
.835
GDP
.891
.879
.323
.939
.835
1.000
.000
.324
.000
.000
.000
Sig. (1-
Market Capitalization
tailed)
.000
.408
.000
.000
.000
Government Stocks
.324
.408
.118
.471
.054
.000
.000
.118
.000
.000
Industrial Securities
.000
.000
.471
.000
.000
GDP
.000
.000
.054
.000
.000
Market Capitalization
26
26
26
26
26
26
26
26
26
26
26
26
Government Stocks
26
26
26
26
26
26
26
26
26
26
26
26
Industrial Securities
26
26
26
26
26
26
GDP
26
26
26
26
26
26