AN EVALUATION OF THE IMPACT OF REGULATORY BODIES IN DEVELOPING A VIABLE AND SUSTAINABLE CAPITAL MARKET (A CASE STUDY OF NIGERIAN STOCK EXCHANGE)
The Nigerian Capital Market is indeed a tool for economic growth and development. Many researchers are of the opinion that the market has done well, especially in terms of return on investments. If this is true, the impact is supposed to be shown on the economy of the nation. The aim of the research is therefore to evaluate the impact of regulatory bodies in developing the capital market with particular reference to the Nigerian Stock Exchange. Data were gathered on the activities of the Nigerian capital market for a period of 5 years (i.e. 2005 – 2010) through studying existing documents and the administration of questionnaires. Descriptive research methods were used. The analysis of data was based on chi-square and the use of table and simple percentages. The findings of the study revealed that the impact of the regulatory bodies on the capital market has enhanced the listing of more companies on the floor of the Nigerian Exchange. Finally, it is recommended, among others that less stringent listing requirement be employed by the Exchange to allow more participation of intending participants in the market.
TABLE OF CONTENTS
Title Page - - - - - - - - - i
Declaration - - - - - - - - ii
Approval Page - - - - - - - - iii
Dedication - - - - - - - - - iv
Acknowledgement - - - - - - - v
Abstract - - - - - - - - - vii
Table of Contents - - - - - - - viii
1.0 Introduction - - - - - - - 1
1.1 Background of the Study - - - - - 1
1.2 Statement of the Problems - - - - - 3
1.3 Objectives of the Study - - - - - 4
1.4 Research Hypothesis/Questions - - - - 5
1.5 Significance of the Study - - - - - 5
1.6 Scope of the Study - - - - - - 6
1.7 Historical Background of the Case Study - - 7
1.8 Definition of Terms - - - - - - 11
2.0 Introduction - - - - - - - 13
2.1 Relevant Concepts and Theories - - - - 27
2.2 Sub Heads - - - - - - - - 27
3.0 Introduction - - - - - - - 30
3.1 Population and Sample Size - - - - 30
3.2 Sampling Techniques - - - - - - 31
3.4 Sources and Method of Data Collection - - - 32
3.5 Methods of Data Analysis - - - - - 33
3.6 Justification for the Choice - - - - - 33
4.0 Introduction - - - - - - - 36
4.1 Data Presentation - - - - - - 36
4.2 Data Analysis and Interpretation - - - 37
4.3 Testing of Hypothesis/Questions and Interpretation 43
5.1 Summary - - - - - - - - 46
5.2 Limitations of the Study - - - - - 48
5.3 Conclusion - - - - - - - - 49
5.4 Recommendations - - - - - - 50
Bibliography - - - - - - - 52
Appendix - - - - - - - - 54
1.1 THE BACKGROUNG OF THE STUDY
The economic growth and development of any economy largely depend on the ability to raise capital through the capital market. The Nigerian stock exchange is a place where the enormous capital which is required to operate the huge industrial and commercial cooperation today can be raised.
Osaze (1991) asserted that the emergence of the institution of the Nigerian stock exchange is a spontaneous reaction of the enterprise economies. The significance reaction of the stock exchange in an economy such as our own cannot be over emphasized, for it is the bed-rock of large scale investment. The Nigerian government hopes to create an economy which would bring about the best in its citizens, compete effectively in the global market and improves the standard of living of its people. An economy where hard work, accountability and transparency would be the cardinal principle that both foreign and local investors would be proud to participate in. once investors looses confidence as a result of market abuse, the growth and development of capital market would be adversely affected and considerable effort would be required to restore confidence.
To be globally attractive and completive, the stock market must be seen to imbibe practices which are globally acceptable. For this reason government tries to put in place adequate regulatory mechanism to prevent or at least minimize market abuse in order to uphold the integrity and confidence that is very essential for the development of a viable and sustainable capital market.
The Nigerian stock exchange is the centre point of the Nigerian capital market. However, the Securities and Exchange Commission (SEC) and the central bank of Nigeria (CBN) are the apex regulatory bodies to the capital market. The tendency of our financial structure has been to channel loans to industries of the past rather than the future (i.e. the rich third world countries). This has become invariably clear that even those external financiers are eroding, thus the need for our own structure in Nigeria to meet up with the excess demand for capital to finance gigantic projects and businesses.
The international organization such as the world bank group are very conscious of the high risk involved in venture of loan given to third world countries which will eventually evade payment of such loans.
There is every need to meet such demand and requirements for smooth and long lasting system for sourcing of such requisite finance.
The study therefore examines in order to evaluate what regulatory bodies have done to ensure the development and sustenance of a viable capital market that will meet global challenges.
1.2 STATEMENT OF THE PROBLEM
For an emerging market like Nigeria, the stringent control measures put in place to regulate the activities of the Nigerian stock exchange for the smooth running is a very huge problem that is hindering the development of the market. The researcher hopes to seek for solution(s).
Regulators in our emerging market are also faced with a problem of ignorance, Nigeria with a population of 160 million, and half of the populations are ignorant about the investment opportunities that abound in the capital market. This is also a monumental problem that the researcher hopes to proffer solution to. Only if solutions to the stated problem are provided that the research work will be significant
1.3 THE OBJECTIVE OF THE STUDY
The objective of this study is to seek for the means of relaxing the stringent control measure put in place to regulate the activities of the Nigeria stock exchange to make it run smoothly and effectively.
To educate and sensitize Nigerians who are ignorant of the investment opportunities that are available in the Nigeria capital market. If about 160 million or half of the population invest in the capital market that will bring about a viable development and sustained growth in the Nigerian capital market.
1.4 RESEARCH HYPOTHES/QUESTIONS
Hypothesis is the method used by the researcher to test and prove guess statement in connection with the problem of the research being carried out in this study to confirm on the hypothesis made.
NULL HYPOTHESIS Ho- the impact of the regulatory bodies on the Nigerian capital market has not enhanced the listing of more companies on the floor of the Nigerian stock exchange.
ALTERNATIVE HYPOTHESIS Hi- the impact of regulatory bodies on the Nigerian capital market has enhanced the listing of more companies on the floor of the Nigeria stock exchange.
1.5 THE SIGNIFICANCE OF THE STUDY
The significance of this study cannot be over-emphasized. The research will contribute to the existing body of knowledge in the capital market administration; it will help the director general of the Nigerian stock exchange and his or her management team by exposing some means through which they can improve their performance towards meaningful achievement therefore, this study will have the following significance, the study will evaluate the impact of the regulatory bodies in developing a viable and sustainable capital market. Whether it has helped increased the aggregate of listing of more companies on the floor of the Nigerian stock exchange or not. When it is found out to be negative solution will be suggested.
In this regards, the research work will be significant to the following:-
1. The director general and his or her management team.
2. The Nigerian stock exchange (NSE)
3. Academicians. It will serve the purpose of arousing deep thought and genuine interest on the subject matter for further research.
4. The stock market operators.
5. The public as well need the knowledge to be able to assess the performance of the stock market
6. Government, regulatory bodies such as the Securities and Exchange Commission and the Central Bank on Nigeria
7. Non governmental organization(NGOs)
8. Financial analysts
9. Foreign and local investors
10. The general public
1.6 THE SCOPE OF THE STUDY
The scope of this research is limited to Nigerian Stock Exchange. The researcher will focus on the evaluation of the impact of regulatory bodies in developing a viable and sustainable capital market in Nigeria. In essence, the researcher will look at the regulatory frame work put in place to ensure the development of an effective and efficient capital market. Between 2005-2010
1.7 HISTORICAL BACKGROUNG OF THE CASE STUDY
The Lagos stock exchange (LSE) established in 1961 became the Nigerian stock exchange (NSE) in 1977 as the hub of the capital market activities where media and long term financial securities are traded. NSE provide avenue where by sellers and buyers exchange securities at mutually satisfactory prices thereby creating liquidity through its price mechanism. Initially NSE had a set of requirement to be fulfilled before a company is enlisted in the stock exchange market, but in 1985 another requirement for enlistment were issued to allow smaller and particularly wholly individual enterprise to be registered with the stock exchange. Securities that met the initial requirement are referred to as first-tier securities, whereas securities that could meet only the next set of requirement are referred to as second-tier securities. As such there are two types of securities market in NSE, First-tier securities market (FSM) and second-tier securities market (SSM).
There was an attempt for establishment of Abuja stock Exchange (ASE) apart from the Nigerian stock exchange (NSE) which is to be named as Lagos stock exchange (LSE) but the federal government of Nigeria later changed the ASE to Abuja commodity Exchange in 2001 however, the attempt for establishment of ASE was done in order to enhance the efficiency of the stock market activities in the country through healthy competition by the two stock exchanges instead of monopoly by a single institution.
ISSUING HOUSE: issuing houses are institution that advise assist and sometimes undertake the issuance of securities for companies that want to raise funds in the capital market in Nigeria issuing house are primarily merchant bank and stock brokerage firms which set some requirement for a company before accepting to package and act as agent for the company in the said issue. Some of these requirements include level of growth in profitability adequacy of working capital, spread of risk of the venture, size of company and soundness of management decision.
SHARE REGISTRARS: A share registrar could be the secretary of a listed company or an institution, which maintains the register of shareholders for a company that has raise funds from the capital market. The registrar is responsible for issuing share certificate to the shareholders. In Nigeria the major share registrars are three (3) big banks in the country. (UBA, FBN and Union Bank). Stock brokerage firms and some trading companies.
UNIT TRUSTS: Unit trusts are new institutions arrangement in Nigeria for mobilizing the financial resources of small savers for investments in the capital market and managing such resources to achieve maximum return possible with minimum risk through efficient portfolio diversification. Companies and Allied Matters Decrees of 1990 provides the legal framework for establishment of unit trusts in Nigeria. These trusts pool the funds of the public by selling the shares of the trusts and investing the funds mobilized in the capital market securities. The holders of trusts shares are given dividend or capital gain on pro-rate basis.
STOCK BROKERAGE FIRMS: A stockbroker is a firm or an individual who buys and sells securities on behalf of investors on the floor of the Stock Exchange for a Commission called brokerage. Issuing houses originate and sometimes underwrite securities issues, stockbroker distribute and market securities. Issuing houses are also stock brokers in Nigeria and some affiliate companies of merchant banks.
1.8 DEFINITION OF TERMS
Private Placement: One of the pre-requisite for a company to be listed on the NSE is for it to do private placement. This is done in private without advertisement where a particular set of investors not necessarily the public is informed about the offer and invited to invest in a company.
Initial Public Offer (IPO): An IPO is when a company is offering its shares for sale for the first time to the general public. Many companies e.g. Zenith Bank, NAHCO, Dangote Sugar Refinery Plc etc have had IPOs in the past.
Right Issue: This occurs when a company wants to raise money, but only through existing shareholders of the company. Shares are allocated to already existing investors.
Bears and Bulls: This is an investment jargon used to describe the market movement. When the market is bearish it means most stock prices fell, but a bullish market is one in which most stock prices are going up.
Market Capitalization: The market capitalization of a company is what it is worth on the Stock Exchange. It is an easy way to evaluate the worth of a company. It is simply the market price of the stock multiplied by the overall issued shares of the company.
Blue Chip Company: These are shares of companies with long track record of good performance, stability and earnings.
Listing: A company is said to be listed when its shares are quoted on the floor of the stock exchange. This enables the shares of the company to be easily traded on the stock market.
Call Price: The price at which a security with a call provision can be repurchased by the issuer prior to the security maturity period.
Net Asset Acquired: These are proportions of shares in nominal value and the reserves as at the date of acquisition of the company.
Minority Interest: These are the net assets (i.e. shares capital and reserves due to the other shareholders in the company other than the holding company.)